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PURCHASING 


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PURCHASING 


BY 


C.  S.  RINDSrOOS,  C.  E. 

PRESIDENT   OF   THE    UNITED   STATES    PURCHASING    CORPORATION 
FORMER  SECRETARY-TREASURER  THE  FOUNDATION  COMPANY 


First  Edition 
EiciHTH  Impression 


McGRAW-HILL  BOOK  COMPANY,  Inc. 
NEW  YORK:  370  SEVENTH  AVENUE 

LONDON:  6&  8  BOUVERIE  ST..  E.  C.  4 
1915 


Copyright,  1915,  by  the 
McGraw-Hill  Book  Company,  Inc. 


THE  MAI>J.K  FBESS  TOBK  PA 


HP 


PREFACE 

Realization  of  the  importance  of  the  art  of  purchasing,  coupled 
with  an  almost  total  lack  of  hterature  on  the  subject,  has  been  the 
incentive  to  prepare  this  text.  Books  without  end  have  appeared 
^  for  the  benefit  of  the  producer  and  his  salesman.  The  current 
'  pubhcations  are  not  slow  to  record  the  latest  methods  employed 
■^  in  the  operating  and  sales  departments.  But  how  about  the 
^^  man  who  buys  and  who  pays  for  the  goods?  Is  it  not  of  impor- 
^  tance  to  the  purchaser  to  classify  and  study  the  principles  which 
^  govern  his  work?     Would  it  not  be  a  benefit  to  one  buyer  to 

know  what  methods  a  fellow  buyer  pursues? 

ffi      The  one  great  difficulty  in  the  preparation  of  this  book  has 

J  been  in  deciding  its  limitations.     Purchasing  is  a  broad  subject, 

^  and  there  has  been  a  temptation  to  include  many  features  which 

were  simply  out  of  the  question  within  one  volume  of  reasonable 

.  size.     The  result  has  been  the  omission  of  many  topics,  or  in  some 

^  cases  a  compromise  in  the  direction  of  brevity,  where  a  more  ex- 

^  tended  treatment  would  have  been  preferable.     For  example, 

(^advertising,  accounting,  credits  and  traffic  could  profitably  have 

been  treated  from  the  purchaser's  viewpoint.     Likewise,  the  care, 

•  management  and  replenishment  of  the  stock  room  is  sometimes 

Jt  actually  delegated  to  the  purchasing  agent.     The  author  frankly 

Aj  admits  that  the  omission  or  superficial  discussion  of  these  sub- 

j     jects  is  regrettable,  but  when  it  is  remembered  that  the  adequate 

handling  of  any  one  of  them  would  have  required  a  large  portion 

of  the  entire  volume,  the  reader  will  appreciate  the  limitations. 

Another  difficulty  has  been  in  the  choice  of  examples.  It  is 
not  expected  that  all  will  apply  with  the  same  force  to  every 
reader.  The  illustrations  that  would  best  suit  a  railroad  pur- 
chasing agent  will  not  appeal  strongly  to  the  buyer  for  a  retail 
store.  However,  if  the  principles  are  made  plain,  the  examples 
used  to  explain  them  may  be  forgotten  after  they  have  served 
their  purpose. 

Particular  attention  is  called  to  the  chapter  on  some  of  the 
legal  aspects  of  purchasing.  For  this  chapter  the  author  is  in- 
debted to  Mr.  WiUiam  W.  Taylor.     Purchasing  agents  usually 


vi  PREFACE 

have  had  no  legal  training  though  they  are  being  constantly  called 
on  to  prepare  contracts.  It  is  believed  that  a  clear  understanding 
of  a  few  of  the  fundamental  legal  principles  may  be  obtained  from 
this  chapter  and  that  it  will  be  found  one  of  the  most  practical 
in  the  book. 

The  author  wishes  also  to  make  acknowledgment  to  Mr.  W. 
Richmond  Smith,  who,  under  the  direction  of  Hon.  WilUam  A. 
Prendergast,  Comptroller,  prepared  a  report  in  which  is  outlined 
a  proposed  system  for  the  centrahzed  purchase  and  storage  of 
supplies  for  the  City  of  New  York.  While  this  report  was  in- 
tended solely  for  a  municipal  corporation,  so  much  valuable  in- 
formation of  a  general  character  is  contained  in  it,  that  it  has 
been,  to  a  large  extent,  incorporated  in  this  book.  The  author 
expresses  his  appreciation  for  Mr.  Smith's  permission  to  do  this. 

The  author  extends  thanks,  also,  to  the  Alexander  Hamilton 
Institute  for  permission  granted  to  quote  from  one  of  its  text- 
books, prepared  by  Professor  Ralph  Starr  Butler,  University  of 
Wisconsin. 

The  A.  W.  Shaw  Company  has  included  in  its  "Business  Man's 
Library"  one  very  excellent  volume  on  the  subject  of  purchasing, 
and  the  author  extends  his  thanks  for  permission  to  quote  a  few 
passages  from  this  work. 

C.    S.    RiNDSFOOS. 

■   New  York  City, 
May,  1915. 


Y^v 


CONTENTS 


Paoe 

Preface   v 


CHAPTER  I 

How  TO  Obtain  the  Right  Article 

1.  Importance  of  securing  the  right  article 1 

2.  Knowledge  of  the  intended  use  of  article 1 

3.  Knowledge  of  the  article  to  be  purchased 3 

4.  Knowledge  of  the  source  of  supply 4 

5.  Knowledge  of  manufacturing  processes 6 

/  6.  Inspection  during  manufacture 7 

7.  Catalogues 7 

8.  Catalogue  filing 7 

9.  Samples  and  analysis 10 

10.  Summary 12 


CHAPTER  II 

How  TO  Obtain  the  Lowest  Price 

11.  The  bearing  of  previous  considerations  on  price 13 

12.  Knowledge  of  prices 14 

13.  Knowledge  of  demand 18 

14.  Checking  prices  by  competitive  bids 19 

15.  The  lump  sum  method 20 

16.  The  unit  price  method 20 

17.  The  cost  plus  percentage  and  cost  plus  a  fee  methods 21 

18.  Tabulation  of  bids 22 

19.  Verbal  contracts 23 

20.  Written  contracts 23 

21.  Orders  accepting  quotations 24 

22.  Orders  in  the  form  of  offers 24 

23.  Blanket  orders 25 

24.  Forms  in  orders  and  contracts 25 

25.  Summary 26 

26.  Railroad  freight  rates 26 

27.  The  purchase  of  real  estate 28 

vii 


viii  CONTENTS 

CHAPTER  III 

How  TO  Obtain  Prompt  Delivery 

Page 

28.  Importance  of  prompt  delivery 32 

29.  The  bearing  of  previous  consideration  on  time 32 

30.  Rush  orders 33 

31.  Emergency  orders 34 

32.  Mill  and  stock  orders 34 

33.  Bonus  and  penalty  clauses 35 

34.  Tracing  shipments 35 

35.  Expecting  the  impossible 36 

36.  Obviating  rush  orders  by  perpetual  inventory 37 

37.  Summary 37 

CHAPTER  IV 

Making  the  Purchase  Conform  to  Fixed  Policy 

38.  Advantage  of  a  definite  policy 39 

39.  Important  for  purchaser  to  know  the  policy 40 

40.  Different  policies  for  different  businesses 41 

41.  Personal  relations  between  buyer  and  seller 43 

42.  Summary 44 

CHAPTER  V 
How  TO  Obtain  Favorable  Terms 

43.  Meaning  of  terms 45 

44.  Importance  of  favorable  terms 45 

45.  Usual  terms  in  different  lines  of  trade 46 

46.  Tendency  to  restrict  terms 49 

47.  Summary 49 

CHAPTER  VI 

Personal  Characteristics  and  Qualifications 

48.  Other  desirable  qualifications  besides  knowledge 51 

49.  Broadmindedness 51 

50.  Tact      53 

51.  Natural  aptitute 54 

52.  The  buyer  and  the  salesman  compared 55 

53.  Summary 56 


CONTENTS  ix 

CHAPTER  VII 

Strategy 

Page 

54.  What  is  meant  by  strategy  and  its  importance 57 

55.  Sharp  practice 57 

56.  Splitting  the  difference 58 

57.  UtiHzing  the  emotions 60 

58.  Including  extras 62 

59.  Quick  closing 63 

60.  Unbalanced  orders 63 

61.  Blanket  orders  in  their  relation  to  shifting  prices 65 

62.  Evading  the  dealer's  protection 67 

63.  Summary 69 

CHAPTER  VIII 
Some  of  the  Legal  Aspects  of  Purchasing 

64.  Object  of  this  chapter 70 

65.  What  constitutes  a  contract 70 

66.  Importance  of  reducing  contracts  to  writing 72 

67.  Statutes  of  frauds 73 

68.  Modification  of  contracts      74 

69.  Quantity  and  quality  clauses  in  contracts 74 

70.  The  passing  of  the  title  to  the  goods 76 

71.  Time  clauses  in  contracts 77 

72.  Inspection  of  goods 78 

73.  Fixing  price  and  terms  in  a  contract 78 

CHAPTER  IX 
Departmental  Organization 

74.  Relation  between  size  of  business  and  size  of  the  purchasing  de- 
partment     80 

75.  Relation  between  nature  of  business  and  size  of  the  purchasing 
department 80 

76.  A  typical  purchasing  department 82 

77.  The  general  purchasing  agent  and  his  assistant 82 

78.  The  chief  clerk 83 

79.  The  price  clerk 83 

80.  The  transportation  clerk 83 

81.  Inspection,  testing  and  storing  of  materials 84 

82.  Miscellaneous  clerks 84 

83.  Detailed  routine  from  origin  of  requisition  to  receipt  of  goods  .    .  84 

84.  Proposed  system  for  New  York  City 86 


X  CONTENTS 

Paob 

85.  The  ideal  purchasing  department 104 

86.  Jobbers'  agencies 104 

87.  Foreign  agencies 105 

88.  Consumers'  agencies 105 

89.  Miscellaneous  agencies 106 

90.  Summary 106 

CHAPTER  X 

Forms 

91.  Advantage  in  the  use  of  forms 107 

92.  Choice  of  language  in  preparing  forms 107 

93.  Objections  to  the  use  of  forms 108 

94.  Object  of  form  illustrations 108 

95.  Form  letters 109 

96.  Requisitions 117 

97.  Tabulation  of  bids      122 

98.  Price  and  catalogue  index  cards 124 

99.  Orders  and  acceptances 126 

100.  Typical  clauses  for  use  in  writing  orders 131 

101.  Order  register  and  tracer 135 

102.  Contracts 136 

103.  Miscellaneous  forms 160 

Index 163 


PUECHASING 

CHAPTER  I 
HOW  TO  OBTAIN  THE  RIGHT  ARTICLE 

1.  Importance  of  securing  the  right  article. — The  most  im- 
portant obj  ect  in  making  any  purchase  is  to  obtain  the  right  article, 
that  is  to  say,  that  article  which  is  best  suited  to  meet  the  buyer's 
requirements.  No  one  would  be  commended  for  buying  a  cargo 
of  buckwheat  coal  for  boilers  designed  to  burn  nothing  smaller 
than  pea,  no  matter  how  low  the  price  nor  how  favorable  the 
terms.  Little  praise  is  due  the  man  who  bought  snow  plows  for 
the  Panama  Railroad  regardless  of  the  conditions  of  the  contract. 
This  seems  self-evident,  and  yet  ninety-nine  purchasing  agents 
out  of  ninety-nine  work  on  the  theory  that  price  is  the  most  im- 
portant consideration. 

Price  is  important,  but  unless  the  article  bought  is  that  which 
will  perform  the  duty  required,  whatever  is  paid  is  wasted. 
Or  again,  if  the  article  required  is  one  which  must  serve  for  five 
years,  it  is  a  waste  of  money  to  buy  one  which  will  last  only  one 
year,  unless  the  five-year  article  specified  will  cost  more  than  five 
times  as  much.  It  is  understood,  of  course,  that  sufficient  money 
is  in  hand  to  get  the  higher  class  article.  The  cost  of  replace- 
ments and  the  loss  entailed  by  reason  of  a  shutdown  during  re- 
pairs must  also  be  considered.  Obviously  a  prime  requisite  in 
making  a  good  purchase — in  getting  the  right  article — is  a  knowl- 
edge of  the  use  to  which  it  is  intended  to  put  that  article. 

2.  Knowledge  of  the  intended  use  of  article. — One  of  the  great- 
est weaknesses  in  most  purchasing  agents  is  unfamiliarity  with 
the  details  of  the  business  for  which  they  purchase.  Professor 
Butler  says:  "In  addition  to  the  policies  and  resources  of  the 
house  he  represents,  the  buyer  must  know  thoroughly  the  manu- 
facturing processes  through  which  the  raw  material  passes.  The 
buyer  deals  with  many  salesmen.  Each  one  handles  probably 
but  a  single  article  or  line  and  in  that  one  field  he  is  an  expert. 

1 


2  PURCHASING 

The  salesman  knows  absolutely  the  exact  place  and  advantages 
of  his  article  or  line  in  the  manufacturing  process  of  the  house 
to  which  he  is  trying  to  sell.  He  is,  therefore,  at  an  advantage 
over  the  buyer,  unless  the  latter  also  has  a  complete  knowledge 
of  how  the  product  of  his  house  is  manufactured."  The  more 
intimate  this  knowledge  is,  the  less  likelihood  there  is  of  not  get- 
ting the  right  article.  Witness  the  experience  of  one  of  the  large 
railroad  systems  whose  purchasing  agent  bought  a  number  of 
locomotives  which  were  too  long  for  their  turntables.  It  proved 
cheaper  to  resell  the  locomotives  to  another  railroad,  at  a  sac- 
rifice, than  to  rebuild  all  of  the  turntables. 

Such  a  mistake  seems  inexcusable,  but  similar  ones  occur  every 
day,  and  they  recur.  The  purchaser  no  sooner  goes  into  the 
market  for  an  article  than  he  finds  a  legion  of  products  which 
differ  but  slightly  the  one  from  the  other.  Without  a  knowledge 
of  the  ultimate  use  for  which  they  are  intended,  it  is  impossible 
to  be  sure  what  detail  may  make  any  gi-ven  object  unsuitable. 

One  is  about  to  buy  roofing  for  a  building.  What  are  the 
weather  conditions?  Are  there  fumes  which  will  preclude  the 
use  of  iron?  Will  the  nature  of  the  building  warrant  tile?  If 
so,  are  the  surrounding  conditions  such  as  to  render  tile  liable  to 
breakage?     Would  asbestos  be  satisfactorj^? 

Reinforcing  steel  is  requisitioned.  Will  the  conditions  permit 
the  use  of  re-rolled?  Is  it  desirable  to  have  soft,  mild  steel  that 
will  stand  bending,  or  would  high  carbon  steel,  harder  to  bend 
but  capable  of  standing  greater  stress,  be  preferable? 

A  motor  is  to  be  purchased.  Shall  it  be  enclosed  as  a  protection 
against  moisture  or  shall  it  be  of  the  open  type?  Shall  it  have  a 
pulley  extension?  Would  the  induction  type,  without  brushes, 
be  of  advantage?  Is  the  amount  of  required  floor  space  a  con- 
sideration? No  matter  what  the  nature  of  the  purchase  may  be, 
a  host  of  questions  arise  that  can  be  answered  only  l)y  a  knowledge 
of  the  use  to  which  it  is  intended  to  put  the  article. 

It  is  not  possible  that  the  purchaser  can  always  have  this  close 
knowledge  at  first  hand.  Where  the  business  is  small,  it  is  pos- 
sible. Where  purchasing  is  done  for  a  large  corporation,  whose 
needs  may  embrace  every  conceivable  object,  the  detailed  in- 
formation must  be  put  in  the  hands  of  the  purchasing  agent  in 
such  explicit  form  that  he  can  proceed  with  certainty  from  a  paper 
standpoint.  The  method  of  conveying  this  information  on  paper 
is  indicated  in  Sec.  96,  Chapter  X,  Figs.  A,  B,  C  and  E. 


HOW  TO  OBTAIN  THE  RIGHT  ARTICLE  3 

3.  Knowledge  of  the  article  to  be  purchased. — Next  in  im- 
portance to  the  knowledge  of  the  use  to  which  it  is  intended  to 
put  the  article  is  a  knowledge  of  the  article  itself.  To  take  an 
extreme  case,  a  man  who  is  thoroughly  versed  in  the  subject 
of  electric  motors  is  in  a  better  position  to  buy  motors  than  the 
man  whose  knowledge  is  confined  to  dress  goods,  and  vice  versa. 
If  the  specifications  called  for  a  100-h.p.  motor,  440  volts,  60 
cycles,  the  experienced  buyer  of  electrical  machinery  would  at 
once  note  that  his  information  was  incomplete;  that  he  should 
know  the  phase,  the  type,  whether  open  or  enclosed,  vertical 
or  horizontal,  etc.  This  would  be  Greek  to  the  man  experienced 
only  in  dress  goods.  If  the  latter  made  no  more  serious  blunder, 
he  would  at  least  waste  a  lot  of  valuable  time  in  self-education 
while  trying  to  get  prices.  The  salesman  would  ask  many 
questions  which  the  purchasing  agent  could  not  answer.  On 
obtaining  this  information  for  the  salesman,  he  would  be  asked 
an  entirely  new  set  of  unintelligible  questions  by  the  next  sales- 
man, and  after  playing  battledoor  and  shuttlecock  between  his 
engineering  department  and  the  trade,  he  would  hardly  be  in 
a  commanding  position  in  the  transaction. 

There  is  another  advantage  in  knowing  the  material  which  one 
is  trying  to  buy.  Both  catalogues  and  salesmen  convey  a  great 
deal  of  information  which  is  pertinent  and  a  great  deal  more  that 
is  unimportant.  How  much  importance  would  a  man,  whose 
sole  previous  duties  had  been  the  buying  of  hats,  place  on  the 
density  of  chemical  earthenware,  or  its  percentage  of  iron,  where 
the  material  was  to  be  used  in  an  electrochemical  plant?  How 
much  importance  would  a  man,  whose  entire  experience  had  been 
confined  to  the  buying  of  earthenware,  place  on  style  if  called  on 
to  buy  headgear?  To  sift  important  fact  from  unimportant  talk 
is  a  task  much  lightened  by  experience  and  knowledge. 

It  is  a  realization  of  the  importance  of  an  intimate  knowledge 
of  goods,  their  manufacture,  character  and  uses,  that  has  led 
many  manufacturing  establishments  to  institute  schools  of  appren- 
ticeship for  their  salesmen. 

^"When  salesmen  are  being  constantly  trained  for  efficiency,  we  hear 
little  or  nothing  about  training  the  buyer  to  resist  the  blandishments 
of  the  finely  trained  salesman.  What  the  'natural  born'  buyer  would 
do  under  fire  of  the  'scientific'  salesman  making  an  approach  psychologic- 
ally perfect,  will  probably  be  determined  in  the  future." 

^A.  W.  Shaw  Company. 


4  PURCHASING 

The  salesman  who  has  been  "through  the  shop"  and,  for  ex- 
ample, used  a  lathe;  who  has  served  in  his  own  factory  and  helped 
to  build  lathes;  who,  in  short,  knows  every  nut  and  bolt  and  spe- 
cial feature  of  the  lathe  he  is  trying  to  sell,  has  a  far  greater 
chance  to  talk  his  customer  into  an  order,  than  one  whose  knowl- 
edge is  superficial.  Conversely,  the  man  who  is  in  the  market 
for  such  a  tool  can  select  that  one  which  best  fits  his  needs  if  he  is 
similarly  posted.  Lacking  such  information,  he  is  either  misled 
by  the  salesman,  or  at  least  he  cannot  feel  absolutely  sure  that 
he  has  purchased  the  machine  best  adapted  to  his  wants. 

As  stated  in  respect  to  the  desirability  of  knowing  the  ultimate 
use  of  a  purchased  article,  so  with  respect  to  a  knowledge  of  the 
article  itself,  it  cannot  be  expected  that  the  purchaser  will  know 
all  at  first-hand.  He  should  be  supplied  with  sufficient  data  by 
those  who  are  in  a  position  to  know,  at  the  time  he  is  given  a 
requisition  to  buy.  He  should  further  endeavor  to  acquaint 
himself  with  the  various  makes  which  are  offered,  talking  to 
those  who  have  used  them,  comparing  the  specifications  of  each, 
and  by  examination,  where  possible,  of  the  actual  articles  which 
are  under  consideration. 

Having  in  mind  the  use  of  any  article  as  well  as  a  knowledge 
of  the  article  itself,  the  next  important  thing  to  know  is  the  logical 
source  of  supply. 

4.  Knowledge  of  the  source  of  supply. — The  source  of  supply 
may  be  very  large,  as  in  the  case  of  cement,  or  it  may  be  very 
small,  as  in  the  case  of  aluminium.  In  either  case  there  are 
sound  reasons  for  dealing  only  with  the  logical  producer.  Where 
there  are  a  great  many  producers,  it  will  invariably  be  found 
that  a  few  will  be  experienced  in  supplying  the  exact  article 
wanted,  and  it  is  usually  best  not  to  waste  time  with  the 
others. 

For  example,  there  are  many  manufacturers  of  glass  tubes. 
If  large  tubes  are  wanted,  the  best  results  can  be  obtained  from  a 
comparatively  few,  though  even  those  makers  experienced  only 
in  small  tubes  would  be  likely  to  undertake  to  fill  the  order. 
In  some  cases  the  source  of  supply  is  small.  If  a  clear  purple 
slate  free  from  iron  or  streaks  is  wanted,  it  would  be  unwise  to 
invite  bids  from  Pennsylvania  producers  where  the  output  is  not 
of  that  character.  It  seems  simple  enough  that  one  should  not 
employ  a  house  carpenter  for  cabinet  work  nor  a  dock  builder 
to  build  a  house,  and  yet  essentially  the  same  thing  happens 


HOW  TO  OBTAIN   THE  RIGHT  ARTICLE  5 

when  one  goes  outside  of  the  logical  market  in  purchasing.     This 
is  usually  due  to  a  lack  of  knowledge  of  the  source  of  supply. 

1"  Outside  of  trust  controlled  products,  the  supplying  houses  are  in  a 
state  of  continual  and  relentless  competition.  The  buyer,  knowing 
what  supplies  he  needs,  must  know  just  as  thoroughly  the  houses  hand- 
ling his  needed  line.  Then,  too,  the  advantages  of  not  only  the  local 
houses  over  one  another,  but  the  houses  in  other  cities;  their  facilities 
for  delivery;  their  ability  to  make  their  promises  good;  their  reputation 
for  financial  responsibility  and  a  thousand  questions  must  be  weighed 
and  considered  before  an  order  of  any  size  is  given." 

For  the  inexperienced  or  unposted,  there  exist  many  sources 
of  information.  The  trade  papers  are  of  assistance,  and  their 
advertising  columns  should  be  consulted.  Of  course,  all  adver- 
tisements cannot  be  taken  at  par,  but,  in  general,  the  rule  exists 
that  the  higher  the  nature  of  the  publication,  the  more  reliable 
will  be  the  statements  which  it  publishes.  In  fact,  many  pub- 
lications refuse  to  print  extravagant  or  unwarranted  statements 
submitted  by  their  advertisers.  Classified  business  directories 
will  usually  be  available  for  the  large  cities,  and  they  will  occa- 
sionally be  of  assistance.  Registers  which  are  reliable,  such  as 
Hendricks'  or  Thomas',  can  be  consulted  in  obtaining  complete 
lists  of  the  producers  of  certain  articles,  while  such  publications 
as  Moody's  or  Bradstreet's  will  help  to  determine  the  names  of 
the  officers,  and  the  financial  standing  of  sellers.  There  are 
companies  such  as  Proudfoot's  or  Dun's  which  will  give  special 
reports,  if  such  are  deemed  necessary.  Organizations,  such  as 
the  manufacturers'  associations,  boards  of  trade,  chambers  of 
commerce,  etc.,  are  always  willing,  not  only  to  help  their  members, 
but  to  give  information  to  those  who  would  have  dealings  with 
them.  In  each  trade  will  usually  be  found  some  source  of  in- 
formation which  is  quite  reliable  for  that  particular  line.  For 
example,  there  exists  for  the  use  of  the  architect,  "Building 
Data  League,  Inc.,"  which  is  conducted  on  a  high  plane  to 
furnish  information  regarding  the  best  source  of  supply  of  any 
article  required  in  the  building  trade. 

Undoubtedly  the  most  used  and  the  readiest  way  of  obtaining 
such  information  is  by  inquiry  through  allied  lines.  For  example, 
a  seller  or  manufacturer  of  paving  brick  would  gladly  give  in- 
formation as  to  the  best  source  of  supply  for  face  brick,  and  a 
man  in  the  paving  brick  industry  would  probably  be  well  posted 
on  the  trade  in  general. 

'  A.  W.  Shaw  Company. 


6  PURCHASING 

Some  authorities  take  the  position  that  the  knowledge  of  the 
source  of  supply  is  the  only  gage  by  which  to  measure  a  man's 
ability  as  a  purchaser.  This  is  an  exaggerated  view,  but  without 
question  such  knowledge  is  a  very  important  qualification,  and 
one  that  onlj^  large  experience  can  develop. 

Some  artificial  conditions  may  exist  by  reason  of  which  the 
logical  producer  cannot  afford  to  offer  the  greatest  attraction  to 
the  buyer.  A  combination  working  to  the  detriment  of  the  con- 
sumer may  be  in  existence  among  the  principal  producers.  A 
temporary  depression  in  one  line  of  trade  may  create  a  situation 
where  the  purchaser  can  do  best  outside  the  logical  field.  A  strike 
may  be  impending  which  would  tie  up  the  logical  producers. 
But,  generally  speaking,  the  experienced  purchaser  sticks  to  the 
logical  market.  The  inexperienced  purchaser  should  above  all 
be  assured  that  this  is  by  far  the  safer  policy  to  pursue  if  he  be 
intent  on  getting  the  right  article. 

5.  Klnowledge  of  manufacturing  processes. — Another  factor 
to  be  considered  in  obtaining  the  right  article  is  the  manufactur- 
ing process.  With  knowledge  of  this  subject,  the  purchasing 
agent  can  classify  the  manufacturers  into  two  groups  with  refer- 
ence to  any  particular  purchase — those  who  are  equipped  to 
handle  the  matter  and  those  who  are  not.  For  example,  certain 
forgings  can  be  best  made  by  hand  and  certain  other  forgings  can 
be  made  to  better  advantage  by  machine.  The  conclusion  is 
obvious.  Again,  certain  products  are  known  as  standards  and 
others  as  special.  Often  the  standard  is  as  good  for  the  purpose 
as  the  special.  For  example,  large  aluminium  bus  bars  are  made 
''commercial,"  that  is,  with  edges  rolled,  and  "special,"  with 
the  edges  sawed.  Usually  the  commercial  bar  is  the  right  article, 
though  without  this  knowledge,  the  special  might  be  specified 
at  a  greater  cost  in  time  and  money. 

Whenever  the  quotations  seem  to  be  higher  than  they  should, 
the  sellers  should  be  asked  what  there  is  unusual  in  the  specifica- 
tions. These  inquiries  will  often  elicit  the  information  that  cer- 
tain details  have  been  specified  in  a  way  so  costly  as  to  raise  the 
total  cost  unduly.  Knowledge  of  the  processes  of  manufacture 
will  suggest  to  the  buyer  modifications  which  will  allow  the  seller 
to  reduce  his  price  to  their  mutual  benefit.  Lacking  such  knowl- 
edge, the  buyer  should  not  hesitate  to  ask  for  suggestions  by  the 
seller  to  the  end  that  he  may  adopt  standard  practice  wherever 
possible. 


HOW  TO  OBTAIN  THE  RIGHT  ARTICLE  7 

Knowledge  of  manufacturing  processes  does  not  apply  simply 
to  the  processes  used  in  producing  the  goods  needed  by  the  pur- 
chaser. He  should  know  his  own  manufacturing  processes  as 
well.  This  was  implied  in  the  discussion  on  the  value  of  knowing 
the  intended  use  of  an  article.  The  value  of  a  knowledge  of 
manufacture,  whether  it  be  the  process  utilized  by  the  buyer  or 
the  seller,  can  be  stated  concisely  as  consisting  in  the  ability  to 
substitute  standard  labor  or  standard  material  for  special. 

6.  Inspection  during  manufacture. — In  man}^  instances  in- 
spection during  manufacture  is  desirable  in  order  to  obtain  the 
right  article.  Where  a  specialist  is  not  available  from  the  regular 
staff,  one  can  be  procured  from  concerns  who  make  this  their 
business.  It  is  impossible  to  make  a  definite  assertion  stating 
when  to  inspect  and  when  inspection  would  be  unnecessary. 
This  will  depend  on  the  amount  of  money  involved  and  the  serious- 
ness that  would  attach  to  inferior  material  or  workmanship. 
Various  customs  will  be  found  to  exist,  however.  For  example,  it 
is  quite  universal  to  inspect  lumber,  steel  and  cement;  machinery 
is  sometimes  inspected  during  manufacture;  most  articles  are 
not  inspected  until  delivery.  It  will  not  be  hard  to  decide  when 
an  inspection  is  advisable,  but  the  difficulty  lies  in  so  placing  an 
order  that  should  the  inspector  discover  faulty  material  or  work- 
manship, the  cost  of  replacement  will  clearly  be  chargeable  to 
the  manufacturer.  A  further  difficulty  will  be  to  secure  an  in- 
spector who  is  conscientious,  practical  and  j^et  the  possessor  of 
common  sense. 

7.  Catalogues.— Every  well-ordered  purchasing  department 
maintains  a  catalogue  file.  These  catalogues  are  a  great  aid  in 
determining  who  can  produce  the  right  article.  Such  a  file  is  easy 
to  obtain  and  easy  to  keep.  All  sellers  are  glad  to  furnish  cata- 
logues free  to  all  who  are  even  remotely  interested.  The  matter 
they  contain  will  afford  almost  a  liberal  education  to  the  reader. 

That  catalogue  ratings  are  high  is  universallj'  known,  though 
the  modern  tendenc}'  is  toward  the  truth,  and  the  specific  statis- 
tics which  they  contain  are  usually  reliable.  The  general  state- 
ments contained  in  them  are  to  be  discounted.  Catalogues,  like 
people's  clothing  reflect  the  owners.  Those  most  simple  and  con- 
servative are  quite  likely  to  be  most  dependable. 

8.  Catalogue  filing. — Even  the  smallest  purchasing  department 
will  soon  accumulate  so  many  catalogues  that  they  become  a 
problem,  unless  properly  filed  and  indexed.     They  look  unsightly 


8  PURCHASING 

and  when  a  certain  one  is  most  needed,  it  cannot  be  readily'  found. 
A  number  of  filing  systems  have  been  developed,  but  the  one 
which  is  most  generally  useful  will  be  explained. 

Sectional  bookcases  should  be  secured.  They  are  preferable 
to  stationary  or  built-in  shelves,  since  the  catalogue  file  is  a 
changing,  growing  library.  Solid  shelves  may  fit  the  library  of 
to-day,  but  be  of  totally  wrong  size  and  shape  to-morrow.  The 
sectional  bookcases  can  be  obtained  in  sizes  and  shapes  that  will 
conform  to  all  kinds  of  catalogues.  They  can  be  arranged  and 
readily  re-arranged,  added  to  or  extended,  as  the  library  changes. 
Some  effort  has  been  made  to  standardize  the  size  and  shape  of 
catalogues,  but  the  movement,  while  a  good  one,  is  too  much  a 
thing  of  the  future  to  be  considered  in  deciding  on  the  kind  of 
furniture  to  employ.  Standard  sectional  bookcases  can  be  pur- 
chased from  about  70  cts.  per  section  up  to  several  dollars  per 
section  and  in  a  variety  of  woods,  or  of  steel. 

On  the  feature  of  housing  catalogues,  there  can  be  no  two  opin- 
ions. It  will  be  found  best  to  group  by  size  and  shape  only,  dis- 
regarding their  contents.  Where  catalogues  are  filed  by  subjects 
or  manufacturers'  names,  an  unattractive  appearance  results. 
Small  catalogues  or  pamphlets  do  not  appear  well  when  next  to 
large  ones.  Furthermore,  many  catalogues  illustrate  a  nmlti- 
tude  of  products  so  that  it  is  almost  a  physical  impossibility  to 
keep  together  all  the  catalogues  of  one  class.  Again,  accessions 
are  being  made  constantly  and  it  would  be  a  burden  to  be  con- 
tinually re-arranging  all  to  suit  the  new  ones.  If  catalogues  are 
filed  with  regard  to  appearance  only  and  are  supplemented  with 
a  proper  cross-index,  no  confusion  will  result.  It  must  not  be 
thought  that  this  method  is  urged  because  of  appearance  only, 
but  it  so  happens  that  this  is  also  the  most  practical  and  con- 
venient way. 

It  is  best  to  place  the  largest  sections  of  the  bookcase  and  the 
largest  catalogues  in  the  bottom,  the  sizes  gradually  decreasing 
toward  the  top.  Otherwise,  the  cases  would  look  as  if  they  were 
on  the  verge  of  toppHng  over.  Each  tier  of  cases  should  be  given 
a  letter  plainly  indicated,  and  each  catalogue  should  be  given  a 
number  and  a  letter  to  correspond  with  the  tier  on  which  it 
belongs,  and  corresponding  with  its  location  on  that  tier. 
Thus  a  catalogue  marked  30-C  would  belong  on  the  third  tier 
and  would  be  the  thirtieth  book  from  the  end. 

Very  small  leaflets  which  will  not  stand  alone  should  be  filed 


HOW  TO  OBTAIN  THE  RIGHT  ARTICLE  9 

in  small  pasteboard  boxes  or  letter  files.  In  this  case,  the  num- 
ber the  leaflet  bears  will  refer  to  the  box,  rather  than  to  itself. 
Thus  pamphlet  5-B  means  it  belongs  in  box  5  on  tier  or  shelf  B. 
These  boxes  should  all  be  filed  on  the  same  tier  or  tiers  for  the 
sake  of  appearance.  If  desired,  a  list  of  the  pamphlets  within 
the  box  can  be  pasted  on  its  edge. 

All  catalogues  should  be  cross-indexed,  one  index  being  by 
dealers'  or  manufacturer's  names  and  the  other  arranged  accord- 
ing to  the  names  of  their  products.  Good  examples  of  such  cards 
are  shown  in  the  last  chapter.  Thus,  if  John  Smith  makes  boilers, 
stacks,  grate  bars  and  gas  holders,  all  of  these  products  would  be 
listed  on  one  card  under  Smith's  name,  together  with  the  number 
and  letter  of  Smith's  catalogue  and  filed  in  one  index  under  "S." 
At  the  same  time,  his  name  would  be  placed  on  one  card  in  the 
other  file  under  boilers,  on  another  under  stacks,  etc. 

It  is  well  to  have  the  cards  in  these  two  indexes  of  different 
colors.  Thus,  one  file  could  be  blue  and  the  other  white.  No 
mistake  would  then  be  made  in  replacing  a  card  in  the  wrong 
card-index  file. 

Some  purchasing  departments  attempt  to  combine  the  card 
index  for  catalogues  with  their  price  index.  This  should  not  be 
done.  The  catalogue  file  is  a  separate  institution  from  the  price 
file  and  attempts  to  combine  them  or  to  put  too  much  information 
on  the  card  defeats  the  very  object  sought,  namely,  simplicity 
and  easy  reference.  The  catalogue  cabinet  should  hold  cata- 
logues only,  and  the  catalogue  card  index  should  be  designed  only 
to  enable  us  to  lay  our  hands  on  any  one  of  them. 

Catalogues  and  advertising  media  of  all  kinds  accumulate 
with  remarkable  rapidity.  They  usually  find  their  way  to  the 
purchasing  agent's  desk.  Many  are  worthless  and  should  be 
thrown  away.  Others  are  valuable  and  should  be  filed.  All 
should  be  scanned  at  least.  It  has  been  the  writer's  habit  to 
have  a  large  basket  in  which  such  literature  is  placed,  rather  than 
on  the  desk.  Each  evening  he  takes  a  few  of  these  and  glances 
through  them  on  the  wa}^  home  or  on  the  way  to  the  office  next 
day.  Many  are  discarded  but  a  good  idea  is  thus  obtained  of 
those  worth  while.  Each  morning  he  places  those  catalogues 
in  the  filing  basket  which  he  has  looked  at  and  desires  to  keep. 
On  the  fly  leaf  he  indicates  the  headings  under  which  they  should 
be  indexed.  In  this  way,  the  catalogue  file  is  kept  free  of  unde- 
sirable literature  while  none  that  is  good  is  lost.     Also,  nothing 


10  PURCHASING 

goes  into  the  permanent  file  without  some  study  and  without 
intelligent  listing  on  the  index. 

9.  Samples  and  analysis. — Many  lines  are  susceptible  of  pur- 
chase by  sample.  The  method  affords  a  good  comparison  be- 
tween articles  from  different  sellers,  and  in  many  cases  the  samples 
can  be  tested  to  make  absolutely  sure  which  brand  best  fulfils 
the  requirements  of  the  purchaser.  Furthermore,  the  sample 
can  be  compared  with  the  material  finally  delivered  to  ascertain 
whether  or  not  the  order  has  been  filled  exactly  as  per  sample. 
Then  again,  the  sample  may  be  filed  for  reference  and  compari- 
son when  placing  future  orders,  if  it  is  decided  to  make  standard 
the  brand  in  question.  Many  purchasing  departments  maintain 
a  sample  file  as  a  valuable  supplement  to  the  catalogue  file. 

Where  the  chemical  composition  of  an  article  is  of  great 
importance,  it  may  be  advisable  to  attach  the  analysis  of  the 
material  to  the  sample,  and  this  analysis  should  be  incorporated 
in  each  order.  The  material  delivered  on  subsequent  orders  can 
be  tested  from  time  to  time  and  the  analysis  checked  with  that 
which  is  on  file,  to  see  that  the  seller  has  not  degraded  his  brand 
since  the  sample  was  submitted.  If  the  material  proves  to  be  of 
inferior  quality,  it  may  be  rejected  or  else  due  deduction  may  be 
made  in  the  payment  of  the  invoice. 

It  is  impossible  to  compare  many  articles  by  brands,  unless  a 
sample  or  chemical  analysis  is  submitted  with  the  bid.  Oil,  rub- 
ber, asbestos  and  the  like  vary  from  the  cheapest  to  the  most  ex- 
pensive. Bids  on  such  articles  mean  nothing  unless  their  com- 
position is  known.  Any  seller  can  quote  on  any  quality  and 
can  therefore  name  any  price  which  he  thinks  will  take  the  order. 
Consequently  he  should  be  advised  either  regarding  the  quality 
wanted  or  the  duty  which  the  article  is  to  perform. 

Some  articles  are  not  susceptible  of  purchase  by  sample,  but 
can  be  bought  on  what  is  for  practical  purposes  a  similar  basis. 
A  case  in  point  would  be  a  hoisting  engine.  No  one  would  expect 
a  sample  hoisting  engine,  but  in  such  a  case  the  same  result 
could  be  secured  by  ordering  ''as  per  hoisting  engine  approved 
by  our  inspector,"  or  "identical  with  hoisting  engine,  shop  number 
(-),"  following  this  description  with  the  main  data,  such  as 
diameter  of  cylinders,  stroke  of  cylinders,  diameter  of  drums, 
number  and  size  of  boiler  tubes,  etc. 

Some  articles  may  be  purchased  on  the  basis  of  quality,  with 
a  bonus  where  the  quality  exceeds  that  specified  and  a  penalty 


HOW  TO  OBTAIN  THE  RIGHT  ARTICLE  11 

where  it  falls  below  the  specification.  This  method  tends  to 
secure  the  best  material  which  the  seller  can  supply.  At  the 
same  time,  if  occasional  lots  of  inferior  material  are  delivered, 
the  seller  not  only  avoids  the  expense  of  its  removal,  but  the 
buyer  is  also  protected  in  that  he  pays  only  what  it  is  worth. 
Coal  is  often  purchased  under  this  system.  Inasmuch  as  coal 
is  bought  for  the  production  of  heat,  the  greater  the  number  of 
heat  units,  the  greater  is  the  price  paid  by  the  purchaser.  Since 
it  is  an  expense  to  remove  ashes,  the  greater  the  percentage  of 
ash,  the  less  the  price  paid.  In  special  cases,  other  qualities 
such  as  percentage  of  moisture,  percentage  of  volatile  matter, 
etc.,  are  taken  into  consideration. 

The  United  States  Bureau  of  Mines,  Bulletin  No.  41  states  as 
follows : 

"Under  the  old  plan  of  purchasing  coal,  when  the  consumer  had  cause 
or  thought  he  had  cause  to  find  fault  with  the  quality  of  the  fuel  he 
received,  he  was  assured  that  it  must  be  good  because,  like  all  the 
other  coal  sent  him,  it  came  from  a  mine  with  an  established  reputation. 
Such  a  state  of  affairs  made  it  difficult  to  take  advantage  of  the  competi- 
tion which  usually  results  from  a  considerable  number  of  bidders  being 
asked  to  submit  prices.  The  purchaser  was  afraid  to  buy  from  any 
dealers  but  those  he  knew  and  trusted,  because,  although  each  dealer 
claimed  that  his  coal  was  equal  in  quality  to  that  of  the  others,  yet  if 
it  did  not  prove  to  be  satisfactory  there  was  no  standard  of  settlement. 

"Many  thousands  of  dollars  worth  of  coal  is  still  bought  each  year  in 
this  manner,  yet  a  buyer  or  investor  should  consider  it  absurd  to  make 
a  contract  for  a  building  with  no  specification  other  than  that  it  should 
be  of  a  certain  size  and  well  constructed.  Neither  would  he  buy  gold, 
silver,  nor  even  copper  or  iron  ores  on  the  mere  information  that  they 
were  mined  at  certain  localities.  This  is  true  of  coal  in  only  a  small 
degree,  but  the  number  of  coal  contracts  made  on  such  a  basis  (per 
heat  unit)  is  increasing  every  year." 

The  tendency  to  buy  at  so  much  per  unit  of  quality,  instead 
of  per  unit  of  quantity  is  one  that  will  increase.  The  idea  is 
fundamentally  sound.  Already  lumber  and  oil  are  bought  on 
that  basis.  It  has  been  proposed  for  cement.  Other  commodi- 
ties will  follow.  Concerns  have  been,  and  are  being  formed 
which  make  tests  and  act  in  a  judicial  capacity  with  relation  to 
contracts  made  on  this  basis.  The  advisability  of  using  this 
method  will  depend  usually  on  the  amount  of  money  involved, 


12  PURCHASING 

that  is,  to  say,  it  will  be  found   practicable   where  the  possible 
saving  is  worth  taking  into  account. 

10.  Summary. — We  thus  see  that  the  first  consideration  in 
making  any  purchase  is  to  obtain  the  right  article;  that  article 
best  calculated  to  perform  the  duty  which  will  be  required  of  it. 
By  analysis  we  see  that  there  are  seven  principal  sources  of  as- 
sistance to  attain  this  object.  These  are  as  follows :  1.  Knowl- 
edge of  the  intended  use  of  the  article.  2.  Knowledge  of  the 
article  itself.  3.  Knowledge  of  the  source  of  supply.  4.  Knowl- 
edge of  manufacturing  processes.  5.  Inspection  during  manu- 
facture. 6.  Catalogues  and  other  publications.  7.  Samples  and 
analysis. 


CHAPTER  II 
HOW  TO  OBTAIN  THE  LOWEST  PRICE 

11.  The  bearing  of  previous  considerations  on  price. — Second 
in  importance  only  to  obtaining  the  right  article,  is  the  price. 
This  is  self-evident.  If  two  sellers  quote  on  identical  articles, 
both  naming  the  same  date  of  delivery  and  the  same  terms,  and 
both  being  equally  reputable,  the  purchaser  would  not  take  long 
to  decide  who  should  have  the  order — the  low  price  would  un- 
doubtedly get  the  business.  Unfortunately,  or  fortunately,  ac- 
cording to  the  viewpoint,  the  case  is  seldom  so  simple  as  this,  and 
it  is  not  always  easy  to  see  who  has  the  lowest  price. 

Everything  that  has  been  said  in  relation  to  getting  the  right 
article  has  its  bearing  on  getting  the  right  price. 

Familiarity  with  the  use  to  which  it  is  intended  to  put  the  arti- 
cle is  of  importance,  not  only  in  obtaining  the  right  article,  but 
in  obtaining  it  at  a  low  figure.  For  example,  a  man  buying  a 
pump  to  handle  salt  water  might  pay  for  bronze  fittings, 
whereas  if  he  knew  clear  water  only  was  to  be  encountered,  he 
would  hardly  make  the  extra  expenditure.  There  are  many 
qualities  of  goods  and  many  details  which  make  some  articles 
cost  more  than  others.  Familiarity  with  the  ultimate  use  of 
the  article  which  is  being  bought,  affords  many  opportunities  to 
do  away  with  unnecessary  items  included  in  the  saleman's  first 
proposition. 

The  same  thing  can  be  said  of  the  bearing  that  knowledge  of 
the  article  itself  has  on  the  price.  Suppose,  for  example,  it  is 
desired  to  buy  black  paint.  A  knowledge  of  what  service  was 
to  be  gotten  out  of  the  paint  is  of  the  first  importance.  It 
might  be  the  intention  to  use  the  paint  for  stencilling,  and  if 
such  were  the  case,  it  would  imply  cheap  paint.  The  buyer 
who  knows  paint  would  then  be  likely  to  buy  an  asphaltic  paint, 
whereas  the  inexperienced  buyer  would  perhaps  pay  for  a 
graphite  and  oil  paint  on  the  recommendation  of  a  salesman. 

A  knowledge  of  the  source  of  supply  has  its  bearmg  on  price 
also.     If  a  large  quantity  of  brick  for  consumption  in  Buffalo 

13 


14  PURCHASING 

is  required,  the  competent  buyer  will  not  waste  his  time  getting 
prices  from  Haverstraw,  although  it  is  a  large  brick  center. 
The  freight  alone  on  the  brick  from  Haverstraw  would  nearly 
equal  the  cost  of  manufacture  in  Buffalo. 

A  knowledge  of  the  source  of  supply  implies  a  knowledge  as 
to  the  financial  status  of  those  producers  from  whom  quotations 
are  solicited. 

i"Many  a  large  contract  has  gone  to  a  small  concern  which  did  not 
have  the  resources  to  complete  it.  The  results  in  such  cases  are  always 
annoying,  and  frequently  productive  of  financial  loss  to  the  purchasing 
house.  The  buyer  cannot  afford  to  deal  with  houses  that  are  not  as 
fully  able  to  fill  the  order  as  his  house  is  able  to  pay  for  the  goods.  In 
other  words,  in  the  placing  of  a  large  order,  the  credit  rating  of  the  seller 
is  as  important  as  that  of  the  buyer." 

A  knowledge  of  manufacturing  processes  is  also  of  great  assist- 
ance in  keeping  down  cost.  One  would  hardly  give  to  a  small 
shop  a  job  which  requires  the  use  of  a  large  universal  screw- 
cutting  machine.  There  are  a  limited  number  of  such  machines 
in  the  country,  located  in  large  shops  only.  The  small  shop,  if 
given  the  order,  would  either  produce  the  article  in  a  crude 
manner  at  a  higher  cost  or  else  sublet  it  to  the  large  shop.  Thus 
at  best  the  purchaser  would  pay  two  profits. 

12.  Knowledge  of  prices. — Aside  from  considerations  already 
discussed  with  relation  to  obtaining  the  right  article,  the  main 
equipment  necessary  to  possess  in  order  to  secure  the  lowest 
price  is  a  thorough  knowledge  of  current  prices.  This  can  be 
obtained  only  by  experience  and  it  can  be  retained  only  by 
continued  practice  and  close  application.  Each  time  an  order 
is  placed,  or  a  contract  let,  the  parties  to  the  transaction  store 
away  in  their  minds  the  essential  facts  so  that,  later  on,  while 
the  details  of  the  matter  may  have  become  vague,  the  salient 
points  remain.  Those  who  are  constantly  buying  a  multifarious 
number  of  articles  will  be  unable  to  remember  the  prices  paid  in 
each  instance,  but  it  will  be  found  that  they  have  a  general  idea 
of  the  prices  of  countless  things.^  "The  successful  buyer  is  a 
storehouse  of  detailed  information."  They  will  be  able  to  name 
offhand  the  approximate  prices  of  a  surprisingly  large  number  of 
items,  and  the  exact  prices  of  many  others.  This  ability  to 
know  values  can  be  developed  by  anyone  who  puts  his  mind  to  it. 

1  Prof.  Ralph  Starr  Butler,  Alexander  Hamilton  Institute. 


HOW  TO  OBTAIN  THE  LOWEST  PRICE  15 

One  of  the  best  and  simplest  ways  of  increasing  one's  fund  of 
price-knowledge  is  "concentration  at  the  moment  of  signing." 
Just  before  affixing  the  signature  to  an  order  or  contract,  read 
the  prices  over  carefully,  neglecting  the  other  matter  which  has 
previously  been  scrutinized,  make  a  mental  picture  of  these 
prices  and  then  dismiss  the  matter  from  the  mind. 

Most  people  who  purchase  also  have  occasion  to  see  a  great 
many  invoices.  A  splendid  way  to  strengthen  one's  price-knowl- 
edge is  to  look  at  the  items  without  letting  the  eye  fall  on  the 
extensions,  and,  at  the  same  time,  say  mentally  what  the  price 
should  be.  Then  look  at  the  extensions  and  see  how  nearly 
correct  your  mental  appraisal  was.  At  first  you  will  be  surprised 
how  few  are  the  items  of  which  you  know  the  value,  but  soon 
there  will  be  mighty  few  you  do  not  know.  In  passing,  it  should 
be  said  that  this  is  the  best  way  to  catch  large  errors  in  invoices 
when  applied  by  a  competent  price  clerk. 

Another  fruitful  source  of  price  information  for  certain  articles 
is  through  the  quotations  of  daily  and  trade  papers.  All  raw 
materials  and  many  standard  finished  and  semi-finished  articles 
are  quoted.  It  would  of  course  be  absurd  to  try  to  follow  daily, 
or  even  weekly,  every  item  which  is  listed,  but  the  general  trend 
of  prices  can  be  followed.  This  is  valuable  information  for  the 
purchaser,  for  how  else  can  he  judge  as  to  the  advisability  of 
buying  a  large  quantity  or  a  small  one.  How  else  can  he  tell 
whether  to  cover  by  blanket  order  the  requirements  of  a  year, 
or  buy  only  a  supply  for  a  month?  It  may  be  said  that  this 
is  speculation  and  not  purchasing.  It  would  be  if  the  pur- 
chaser did  not  need  the  goods,  and  bought  merely  to  resell  them, 
believing  that  prices  were  going  up,  but  this  is  not  the  case.  A 
firm  engaged  in  manufacturing  bolts  uses,  we  will  say,  about  6,000 
tons  of  steel  per  annum.  Its  stock  on  hand  has  been  reduced 
to  1,500  tons,  or  a  three  months'  supply.  If  the  purchasing 
agent  believes,  to  the  best  of  his  judgment,  that  steel  is  at  a  very 
low  point,  and  likely  to  go  up  during  the  next  twelve  months, 
he  would  be  foolish  not  to  take  advantage  of  the  market  and 
cover  for  the  subsequent  year.  If,  on  the  other  hand,  he  believes 
steel  is  going  down,  his  best  policy  would  be  to  buy  only  one  or 
two  months'  supply  to  reinforce  his  stock,  and  place  the  rest 
of  the  year's  requirements  when  the  price  is  more  favorable.  In 
either  case,  the  mill  takes  his  order,  manufactures  the  goods  and 
ships  as  needed.     Neither  the  buyer  nor  the  seller  has  speculated. 


16  PURCHASING 

If  the  purchaser  buys  more  than  he  needs  of  an  article  just  be- 
cause he  thinks  it  is  cheap,  or  the  manufacturer  does  not,  in  a 
short  time,  manufacture  the  goods  because  he  thinks  the  labor 
or  ore  market  will  drop,  then  there  has  been  speculation  in  either 
case.     Prof.  Butler  says: 

"The  buyer  who  foresees  an  era  of  low  or  of  high  prices  and  who 
adjusts  his  purchases  accordingly,  is  in  a  position  to  save  his  employer 
a  great  deal  of  money. 

"The  average  man  who  attempts  to  determine  which  waj^  the  market 
is  going  bases  his  guess  on  insufficient  information,  or  on  no  information 
at  all.  The  small  speculator  who  attempts  this  feat  usually  loses  only 
his  own  money.  The  buyer  who  follows  the  same  tactics  stands  a 
chance  of  ruining  his  employer. 

"Any  buying  on  the  basis  of  future  prices  is  speculative  and  danger- 
ous. If  it  is  attempted,  the  buyer's  judgment  must  be  based  on  the 
most  complete  information  that  it  is  possible  to  acquire.  For  example, 
the  buyer  for  a  large  cotton  mill  is  keenly  interested  in  the  possible 
fluctuations  of  the  price  of  raw  cotton.  No  item  of  news  bearing  on 
the  cotton  supply  escapes  his  attention.  He  is  equally  interested  in 
the  appearance  of  the  boll  weevil  in  Texas,  a  threatened  mutiny  in  India, 
and  in  the  failure  of  the  cotton  crop  in  Egj'^pt. 

"In  like  manner,  the  tea  buyer  for  a  wholesale  grocer  interprets  in 
terms  of  future  prices  such  news  items  as  an  agreement  of  the  Powers 
effecting  the  "open  door"  in  China,  the  Japanese  annexation  of  For- 
mosa, and  the  imposition  of  a  new  duty  on  tea  by  Congress.  These 
examples  suggest  the  range  of  information  that  the  buyer  must  possess 
if  his  judgments  of  price  movements  are  to  be  anjiihing  more  than 
guesses." 

The  same  authority  states:^ 

"The  temptation  to  buy  heavily  is  not  onlj^  occasioned  bj^  the  low 
prices  generally  allowed  on  large  orders.  An  unusual  condition  of  the 
market  frequently  tempts  the  buyer  to  purchase  a  large  stock  of  needed 
supplies  under  peculiarly  advantageous  conditions.  The  restaurant 
keeper  may  have  an  exceptional  opportunity  to  buy  fresh  fruit  at  a 
very  low  price.  He  knows  that  he  will  have  to  pay  more  to-morrow  or 
next  week,  and  if  the  food  could  be  used  before  it  deteriorates  in  quality, 
he  would  save  money  by  purchasing  at  to-day's  price.  The  clothing 
dealer  may  be  offered  a  lot  of  garments  at  a  special  price  which  will  mean 
a  large  profit  on  the  transaction.  If  he  could  accurately  judge  the  future 
demand,  he  might  buy  heavily  because  of  the  unusual  inducement.  The 
automobile  manufacturer  may  have  a  chance  to  make  a  long  time  con- 

1  Alexander  Hamilton  Institute. 


HOW  TO  OBTAIN  THE  LOWEST  PRICE  17 

tract  with  a  certain  manufacturer  of  gasolene  engines  on  especially- 
favorable  terms.  If  he  could  be  sure  that  improvements  and  economies 
would  not  be  effected  in  gasolene  engines  in  the  near  future,  it  would  be 
to  his  advantage  to  enter  into  the  contract. 

"In  all  these  cases  the  price  is  tempting;  and,  if  that  were  the  only 
consideration,  the  buj^er  would  be  saving  money  by  taking  advantage 
of  the  quantity  figures.  There  is,  however,  a  second  consideration  that 
enters  into  every  bujdng  problem.  This  second  consideration  is  the 
necessity  of  limiting  the  size  of  purchases,  which  may  be  caused  (1)  by 
financial  considerations,  or  (2)  bj^  the  possibihty  of  depreciation." 

More  will  be  said  of  this  under  blanket  orders. 

No  matter  how  profound  one's  knowledge  of  prices  may  be, 
it  will  not  be  either  complete  nor  exact  enough  for  all  purposes. 
Hence,  records  must  be  kept.  These  are  usually  of  three  kinds, 
namely,  special  price  cards,  competitive  bids  and  orders  or 
contracts.  Before  buying  any  article  of  consequence,  it  is 
customary  to  receive  and  tabulate  tenders  from  more  than  one 
seller.  These  bids  or  tenders  can  always  be  referred  to  for 
refreshing  one's  information  on  price.  So,  also,  are  the  orders 
and  contracts  available  in  the  same  way  to  show  not  only  a 
record  of  past  performances,  but  also  all  the  details  which 
affected  the  price.  There  are,  however,  a  multitude  of  small 
articles  on  which  bids  may  not  have  been  received,  or  which  are 
not  of  great  enough  importance  to  warrant  a  search  through 
the  order  file,  or,  again,  articles  on  which  the  prices  vary  rapidly. 
These  can  be  most  conveniently  kept  in  card-index  form.  More 
will  be  said  of  all  of  these  forms  later  on  but  they  are  mentioned 
here  to  show  how  they  constitute  one  part  of  a  purchaser's 
equipment  for  knowing  prices. 

Price-knowledge  throws  on  any  deal  a  certain  light  not  to 
be  had  otherwise.  Purchasing,  as  we  have  seen  already,  is  not 
simply  a  matter  of  giving  the  order  to  the  bidder  with  the  lowest 
price.  Often  the  prices  tendered  are  so  low  that  a  sound  knowl- 
edge of  prices,  in  general,  on  the  part  of  the  buyer,  would  warn  him 
that  the  seller  could  not  produce  the  goods  for  the  money  asked; 
that  is,  to  say,  he  could  not  do  so  without  degrading  the  quality 
or  giving  short  measure.  A  master  of  prices  will  rightly  look 
with  suspicion  on  prices  that  are  too  low.  If  several  bids  are 
received  on  a  piece  of  material  and  the  purchaser  notes  that  the 
prices  of,  say,  three  are  approximately  right,  while  another  is 
much  too  high  and  still  another  much  too  low,  he  is  likely  to 


18  PURCHASING 

start  thinking.  "  Did  not  this  man  include  in  his  bid  something 
I  do  not  want  that  his  price  is  so  high?  Does  he  want  the  order, 
or  is  he  bidding  high  to  avoid  it?  Did  that  man  ever  make 
this  material  before,  that  his  price  is  so  low?  Does  he  know  his 
business?  Such  musing  will  probably  result  in  new  conferences 
with  the  high  and  low  bidders.  It  may  well  develop  that  the 
bidder  who  at  first  seemed  high,  proved  finally  to  be  low,  and 
vice  versa. 

13.  Knowledge  of  demand. — Price  and  demand,  in  spite  of 
artificial  limitations,  have  always  been  closely  related.  Just 
as  it  is  possible  to  inform  one's  self  as  to  the  trend  of  prices  by 
watching  their  fluctuation,  so  is  it  possible  to  gain  an  idea  as  to 
a  probable  rise  or  fall  through  a  knowledge  of  demand.  As 
Mr.  G.  A.  Hammer  says:"^ 

"Nor  is  knowledge  of  prices  more  than  a  beginning  of  knowledge 
of  the  market.  The  mere  fact  that  a  certain  price  rules  is  no  sure  guide. 
The  shrewd  buyer  must  look  beyond  the  mere  price  and  must  reach 
into  the  causes  which  have  made  that  price,  and  those  that  are  material 
to  its  remaining  at  that  point,  or  in  causing  its  fluctuation  up  or  down." 

To  take  a  specific  case,  when  the  many  subway  contracts  were 
let  by  the  City  of  New  York,  it  was  at  once  apparent  that  the 
demand  for  gravel  would  exceed  the  supply,  especially  in  winter. 
Many  contractors  anticipated  this  and  covered  their  require- 
ments as  far  ahead  as  they  could  with  certainty.  Other  con- 
tractors did  not  so  cover,  with  the  result  that  they  either  went 
without  or  paid  much  more  for  the  gravel  needed  on  certain 
contracts  then  in  progress,  than  they  in  turn  were  paid  by  those 
for  whom  they  were  doing  the  work. 

Another  example  which  illustrates  the  same  point  is  as  follows: 
Most  leases  of  office  buildings  in  New  York  City  are  from  May 
to  May.  Consequently  old  buildings  are  usually  torn  down 
just  after  May  1,  when  the  owner  is  able  to  terminate  the  leases 
with  his  tenants.  Therefore,  during  May,  June  and  July  of 
each  year  the  market  is  glutted  with  second-hand  materials. 
The  supply  is  greater  than  the  demand,  and  second-hand  timber, 
brick  and  the  like  can  be  purchased  more  cheaply  than  at  any 
other  time  in  the  year.  It  would  be  very  unwise,  therefore,  for 
a  purchaser  who  could  anticipate  during  the  early  summer  his 

'  A.  W.  Shaw  Company. 


HOW  TO  OBTAIN  THE  LOWEST  PRICE  19 

needs  for  such  material  during  the  fall,  not  to  buy  during  the 
"low  price"  season,  unless  other  controlling  conditions  prevented. 

It  must  not  be  supposed  that  legitimate  tangible  demand  alone 
increases  prices.  Even  while  these  words  are  being  written  one 
can  observe  the  effect  of  a  great  foreign  war  on  prices.  Many 
articles  which  we  have  formerly  imported  to  help  out  the  domestic 
supply  have  advanced  in  price  in  anticipation  of  a  shortage  long 
before  the  actual  shortage  has  come.  Many  other  articles  are 
advancing  in  price  because  of  the  temporarily  increased  domestic 
demand  which  has  been  caused  by  the  rush  of  our  people  to  lay 
in  large  stocks  of  those  goods  which  they  expect  will  advance 
later  on.  Other  articles  have  been  deliberately  advanced 
in  price  by  those  who  market  them,  simply  because  the  war 
afforded  an  excuse  of  which  the  sellers  wish  to  take  an  advantage. 
These  things  may  not  be  right,  but,  as  Grover  Cleveland  said: 
"It  is  a  condition,  not  a  theory."  The  purchasing  agent 
who  shuts  his  eyes  to  demand,  whether  it  be  natural  or  ar- 
tificial, actual  or  potential,  cannot  make  the  most  of  his 
opportunities. 

14.  Checking  prices  by  competitive  bids. — Regardless  of  how 
profound  one's  knowledge  of  prices,  or  how  well  posted  one  may  be 
as  to  supply,  demand,  and  the  other  things  we  have  already  dis- 
cussed, there  is  but  one  certain  way  to  get  the  best  price.  This 
is  by  means  of  competitive  bids  or  tenders.  In  other  words, 
invite  two  or  more  different  sellers  to  submit  figures,  the  num- 
ber that  is  requested  to  bid  being  dependent  on  the  number  of 
possible  competent  sellers  available,  and  on  the  importance  of 
the  prospective  purchase.  This  method  is  universally  employed 
not  only  by  professional  purchasing  agents,  but  by  individuals 
generally.  It  is,  however,  worthy  of  extended  study  both  as  to 
the  details  and  the  general  policy  employed  in  applying  it. 

We  have  already  seen  that  the  main  essential  in  any  purchase 
is  to  get  the  right  article.  Hence  it  follows  that  in  inviting 
tenders,  the  first  step  is  to  make  a  list  of  those  who  can  supply 
that  article.  It  is  a  waste  of  both  the  buyer's  and  the  seller's 
time  to  ask  for  bids  from  one  who  can  bid  only  on  an  inferior 
article,  or  whose  bid  will  not  be  considered  in  the  last  analysis. 
Some  purchasers  purposely  obtain  bids  on  inferior  articles,  not 
with  the  idea  of  buying  such  articles,  but  merely  for  use  as  a  lever 
to  force  down  the  price  of  the  lowest  bidder  for  the  superior 
product.     This  method  cannot  be  justified  either  as  necessary  or 


20  PURCHASING 

good  policy.     There  are  many  ways  of  legitimately  getting  the 
right  price  as.will  be  shown  later  in  the  chapter  on  strategy. 

Having  decided  who  will  be  invited  to  submit  bids,  and 
having  paid  due  attention  to  the  ability  of  each  to  supply  the 
right  article,  care  should  be  taken  to  prepare  letters  which  will 
give  full  information  as  to  just  what  is  wanted.  Many  times 
inquiries  are  sent  out  with  insufficient  data  so  that  the  seller  is 
either  forced  to  come  back  for  further  information,  thereby 
wasting  the  buyer's  time,  or  else  he  will  guess  at  the  requirements 
and  submit  a  bid  accordingly.  It  was  estimated  by  one  very 
successful  and  representative  salesman  that  about  75  per  cent, 
of  the  inquiries  lack  data  sufficient  on  which  to  base  a  proper  bid. 
Not  only  should  the  seller  receive  the  fullest  possible  description 
of  the  material  wanted,  but  he  should  also  be  advised  as  to  the 
form  in  which  he  is  to  prepare  his  figure,  that  is  to  say,  whether 
a  lump  sum  for  the  entire  lot,  a  lump  sum  for  separate  items  or  a 
price  per  unit  is  wanted.  The  inquiry  should  also  state  whether 
the  price  should  be  F.O.B.  shipping  point  or  delivery  point,  and 
the  time  allowed  for  supplying  the  material.  The  seller  should 
also  be  asked  to  state  terms;  where  guarantees  are  to  be  asked  for, 
mention  of  this  fact  should  be  made  when  sending  the  inquiry. 

15.  The  lump  sum  method. — There  are  certain  advantages  to 
the  lump  sum  method.  It  is  alwaj^s  an  advantage  to  have  the 
prices  submitted  in  a  lump  sum  because  the  buyer  always  wants 
to  see  how  much  total  money  is  involved  in  the  transaction,  and 
he  is  not  put  to  the  trouble  of  figuring  this  out  if  his  bids  are 
received  that  way  first  hand.  Furthermore,  the  method  is  clean 
cut.  No  disputes  as  to  weights  or  measurements  can  arise  where 
a  flat  figure  is  first  agreed  on.  Again,  when  the  deal  gets  to  a 
closing  point,  a  flat  figure  is  often  susceptible  of  reduction  where 
a  unit  price  would  not  be.  It  is  human  nature  to  trade  more 
easily  when  the  figures  are  simple  and  easy  to  grasp,  than  when 
they  require  computation. 

16.  The  unit  price  method. — On  the  other  hand,  there  are 
very  decided  advantages  to  the  unit  method.  Often  between 
the  date  when  the  inquiry  is  sent  out  and  the  date  on  which  the 
order  is  placed  plans  are  revised  which  would  make  it  necessary 
to  throw  out  the  lump  sum  bid  and  ask  for  new  figures.  This  is 
not  so  with  the  unit  bid.  The  change  in  quantity  would  be 
taken  care  of  automatically.  Then,  too,  unit  bids  are  of  more 
service  for  future  reference.     For  example,  we  will  suppose  that 


HOW  TO  OBTAIN  THE  LOWEST  PRICE  21 

an  order  has  been  placed  for  a  lot  of  structural  steel  at  a  price 
of  2}^  cts.  per  pound  laid  down  in  Rochester.  .We  will  also 
suppose  that  an  order,  similar  in  character  of  material  but  of 
different  tonnage  is  to  be  placed.  After  making  due  allowance 
for  the  difference  in  freight  rates  to  Rochester  and  wherever  the 
second  lot  is  to  be  sent,  and  after  making  allowance  also  for  any 
other  features  that  may  slightly  change  the  second  order  as 
compared  to  the  first,  we  can  use  out  first  price  of  23^^  cts.  to 
judge  how  low  are  our  figures  on  the  second  order.  However, 
had  the  first  order  been  placed  for  a  lump  sum  of  sny  $10,000, 
it  would  be  necessary  to  go  back  and  reduce  the  same  to  a  pound 
or  ton  basis  to  make  any  comparison. 

In  general,  unit  costs  are  more  readily  kept  in  mind  than  lump 
sum  bids.  Unit  bids  are  more  easily  tabulated  and  are  of  more 
use  for  reference.  The  choice  of- method  should  depend  on  the 
case  in  point,  neither  being  used  exclusively.  Usually  standard 
articles  lend  themselves  best  to  unit  prices  and  special  articles 
to  lump  sum  prices.  Where  there  is  a  trade  custom,  it  will  be 
found  best  in  most  cases  to  follow  it. 

17.  The  cost  plus  percentage  and  cost  plus  a  fee  methods. — 
Another  method  sometimes  employed  is  that  known  as  ''cost 
plus  percentage"  or  "cost  plus  a  fee."  In  other  words,  the  seller 
agrees  to  supply  the  labor  or  material,  or  both,  at  his  actual  cost 
plus  a  stated  percentage  of  profit  or  prearranged  fee.  In  some 
classes  of  work  the  seller  is  allowed  to  include  a  proportion  of 
his  fixed  or  overhead  expense  as  being  a  part  of  the  cost  of  the 
specific  work  in  question.  In  other  cases  the  seller  agrees  to 
include  no  overhead  expense.  The  same  statement  applies  to 
plant  and  equipment,  the  use  of  which  is  usually  regarded  as  a 
part  of  overhead  expense. 

Obviously  the  first  thing  to  consider  is  whether  or  not  the  seller 
is  sufficiently  reliable  to  warrant  making  with  him  a  bargain  of 
this  sort.  If  the  seller  is  an  unknown  quantit}^  as  regards  busi- 
ness integrity,  it  is  best  not  to  make  such  an  agreement.  A  seller 
of  known  integrity  would  not  purposely  run  up  the  cost  of  his 
product  in  order  to  increase  the  amount  of  commission  he  would 
receive,  but  he  might  not  exercise  the  same  care  to  keep  his  cost 
down  as  he  would  where  the  agreement  was  on  a  lump  sum  basis. 
In  this  respect  the  cost  plus  a  fee  method  offers  an  advantage 
in  that  there  is  no  incentive  to  the  seller  to  run  up  the  cost  but, 
on  the  other  hand,  should  extras  arise,  the  agreement  would  be 


22  PURCHASING 

thrown  open  and  the  buyer  would  be  almost  wholly  in  the  hands 
of  the  seller.  Where  orders  or  contracts,  which  involve  a  large 
hazard,  are  placed  for  labor  and  materials  the  cost  plus  a  fee  or 
cost  plus  percentage  system  offers  decided  advantages.  The 
seller  in  order  to  protect  himself  must  of  necessity  add  a  large 
item  to  his  profit  to  take  care  of  loss  by  reason  of  such  contin- 
gency. In  other  words  the  buyer  pays  for  the  loss  in  hazardous 
business,  whether  the  loss  actually  occurs  or  not,  when  the  lump 
sum  method  is  employed.  In  the  cost  plus  a  percentage  or  fee 
basis  the  buyer  pays  the  contingent  loss  only  if  it  occurs. 

Another  advantage  of  the  cost  plus  a  fee  or  percentage  method 
is  the  saving  in  time  and  this  will  be  discussed  later. 

18.  Tabulation  of  bids. — Having  decided  in  what  form  the  bids 
shall  be  made,  and  having  received  the  quotations  from  those 
invited  to  submit  them,  the  next  step  is  to  tabulate  them.  Most 
purchasers  employ  for  this  purpose  forms  which  have  been  de- 
vised to  suit  their  particular  businesses.  Some  examples  of  such 
forms  are  shown  in  Chapter  X,  Sec.  97.  The  tabulation  of  quota- 
tions should  show  the  name  of  each  bidder,  his  unit  prices,  the 
total  money  involved  after  extending  the  unit  prices,  the  date 
when  each  can  ship,  the  terms  offered,  a  few  main  features  of  the 
article  each  seller  proposes  to  furnish  and  any  other  pertinent 
information.  The  tabulated  list  should  also  give  the  name  and 
approximate  quantity  of  material  to  which  the  bids  pertain. 
It  is  also  useful  to  have  space  to  record  the  name  of  the  success- 
ful bidder,  why  he  got  the  order,  order  number  and  other 
appropriate  remarks.  Space  may  also  be  provided  for  repeat 
orders.  It  is  good  practice  to  attach  to  the  back  of  the  bid 
sheet  all  of  the  original  bids  and  other  correspondence,  so  that 
the  file  of  papers  shows  the  entire  history  of  the  transaction  up 
to  the  time  the  order   was   placed. 

Such  a  bid  sheet  will  show  at  a  glance  the  relative  standing  of 
each  bidder.  The  hst  can  be  prepared  by  a  clerk,  thus  saving 
the  more  valuable  time  of  his  principal.  On  large  and  involved 
transactions  it  would  be  next  to  impossible  to  get  a  proper  per- 
spective from  a  lot  of  miscellaneous  papers  without  tabulation. 
Furthermore,  no  suspicion  as  to  motive  on  the  part  of  the  buyer 
can  arise  where  the  entire  history  of  the  situation  is  so  clearly 
prepared  and  filed.  Sometimes,  where  each  bidder  is  allowed 
to  see  just  where  he  stood,  it  is  more  desirable  to  let  them  see 
the  tabulation  than  the  bulky  correspondence. 


HOW  TO  OBTAIN  THE  LOWEST  PRICE  23 

After  the  bids  have  been  tabulated,  and  the  most  attractive  one 
selected,  the  next  step  will  be  the  making  of  the  contract.  This 
may  be  done  in  any  one  of  four  distinct  ways.  First,  verbally; 
second,  by  means  of  a  single  written  instrument  signed  by  both 
buyer  and  seller,  called  a  contract;  third  by  an  order  to  the  seller, 
accepting  his  quotation,  the  order  and  the  quotation  considered 
together  being  the  contract;  and,  fourth,  by  an  order  in  the  form 
of  a  written  offer  which  the  seller  may  accept  in  writing,  the  offer 
and  acceptance  considered  together  being  the  contract.  Let  us 
consider  these  four  methods  separately. 

19.  Verbal  contracts. — It  is  safe  to  say  that  verbal  contracts 
are  used  far  oftener  than  any  other  kind.  When  the  housewife 
instructs  the  greengrocer  by  telephone  to  send  a  dozen  ears  of 
corn  and  he  says  "all  right,"  a  contract  has  been  entered  into. 
If  the  price  is  not  asked,  the  housewife  is  assumed  to  have  agreed 
to  pay  the  prevailing  rate.  The  grocer's  memorandum,  made  at 
the  time  of  receiving  the  message,  may  be  the  only  written  evi- 
dence. The  contract,  notwithstanding,  is  just  as  effective  as  if 
a  written  instrument  had  been  drawn  and  executed  by  both 
parties  in  the  presence  of  witnesses.  But  in  case  a  dispute  arises, 
the  lack  of  a  written  document  would  make  it  more  difficult  for 
either  party  to  prove  its  contentions. 

Thus  it  is  that  verbal  contracts  are  relied  on  principally  where 
the  amount  of  money  involved  is  small  and  where  a  condition  of 
mutual  confidence  prevails,  the  buyer  trusting  that  the  seller 
will  carry  out  his  word  and  deliver  the  goods  as  promised,  and  the 
seller  trusting  that  the  buyer  will  pay  for  the  goods  he  delivers. 

20.  Written  contracts. — Practically  every  transaction  first 
takes  the  form  of  a  verbal  agreement,  even  those  involving  large 
sums  of  money.  This  is  followed  by  a  written  instrument  con- 
firming what  has  been  agreed  to  verbally.  This  instrument  is 
called  a  "  written  contract "  or  simply  a  "contract."  All  of  the 
conditions  are  set  down  in  proper  form  (see  Chapter  X,  Sec.  102) 
and  each  party  then  affixes  his  signature  at  the  end.  Although 
not  necessary,  these  signatures  are  witnessed  in  order  to  prove 
their  validity  should  either  party  try  to  disprove  his  act.  Usually 
two  copies  are  executed,  one  for  each  party. 

This  form  of  procedure  is  best  where  very  large  sums  are  in- 
volved, where  labor  is  to  be  performed  or  where  the  parties  are 
not  well  known  to  each  other  through  acquaintance  or  reputation. 
It  would  be  the  best  form  in  all  cases  were  it  not  too  cumbersome. 


24  PURCHASING 

It  is  evident  that  in  the  case  just  cited,  the  housewife  would  not 
wish  to  enter  into  a  formal  contract  each  time  she  wished  to  make 
a  purchase  other  than  one  for  cash.  So,  also,  no  business  house 
would  find  it  convenient  to  make  this  form  of  contract  for  the 
numerous  purchases  which  it  may  make  in  the  course  of  the  day. 
Hence,  we  find  the  use  of  orders. 

21.  Orders  accepting  quotations. — The  seller  having  sent  in  a 
written  quotation,  an  offer  to  deliver  certain  things  in  considera- 
tion of  certain  payments  by  the  buyer,  the  buyer  may  write  his 
acceptance  of  this  quotation,  that  is  to  say,  he  may  "order" 
the  seller  to  proceed  in  accordance  with  his  quotation  (see  Chap- 
ter X,  Sec.  99).  The  quotation  and  the  order,  taken  together, 
comprise  the  contract.  The  virtue  of  this  method  lies  in  the 
ease  of  its  execution.  The  buyer  does  not  have  to  submit  any 
papers  to  the  seller  for  signature  other  than  his  direction  to  pro- 
ceed, i.e.,  his  order. 

22.  Orders  in  the  form  of  offers. — Frequently  the  buyer  wishes 
to  accept  the  seller's  quotation  with  certain  modifications.  He 
then  has  two  courses  of  procedure  from  which  to  choose.  The 
better  one  is  to  embody  in  full  the  counter  proposition  on  his  order 
form,  and,  if  this  is  satisfactory  to  the  seller,  the  latter  may  write 
his  acceptance,  send  it  to  the  buyer  and  proceed  with  the  work. 
In  this  case  the  original  quotation  becomes  void  and  the  buyer's 
order  plus  the  seller's  acceptance  comprise  the  contract.  This  is 
the  reverse  of  the  previous  case  where  the  seller's  quotation  and 
the  buyer's  acceptance  form  the  contract.  The  buj^er  may, 
however,  elect  to  send  his  order  in  the  form  of  "we  accept  your 
quotation  of  — —  date  with  the  following  modifications."  If 
the  seller  then  accepts,  the  seller's  first  quotation,  the  buyer's 
order  and  the  seller's  acceptance  are  all  necessary  parts  of  the 
contract.  In  fact,  several  papers  may  pass  back  and  forth  be- 
fore each  point  is  settled,  in  which  case  these  various  papers 
taken  together  comprise  the  contract.  For  this  reason  it  is  best 
to  follow  the  first  procedure  in  the  interests  of  simplicity.  How- 
ever, it  will  be  found  in  practice  that  even  where  there  is  a  large 
amount  of  correspondence  before  the  minds  meet,  much  time  has 
been  saved  over  using  the  regular  form  of  contract,  as  the  seller 
will  usually  proceed  with  the  work  as  soon  as  the  order  is  re- 
ceived on  the  assumption  that  the  minor  details  will  be  settled 
amicably  during  the  negotiation. 


HOW  TO  OBTAIN  THE  LOWEST  PRICE  25 

23.  Blanket  orders. — A  blanket  order,  as  is  indicated  by  the 
name,  calls  for  the  delivery  of  material  at  different  times.  There 
are  many  kinds  of  these,  as  for  example:  orders  which  call  for  a 
definite  quantity  to  be  delivered  ''as  called  for;"  orders  which 
call  for  supplying  "the  entire  requirements  of  the  buyer"  for  a 
specified  time  at  certain  prices,  or  at  the  market  price;  orders 
which  cover  the  buyer's  entire  requirements  in  a  certain  line,  at  a 
sliding  scale  of  prices  depending  on  the  quantity  consumed  during 
a  certain  period.  All  blanket  orders  have  three  advantages, 
namely,  they  save  the  time  of  getting  bids  and  placing  orders  for 
each  individual  item  as  it  is  required;  they  enable  the  buyer  to 
get  a  low  price  because  one  seller  gets  all  the  business  in  that  line, 
and  since  the  quantity  is  thus  greater  than  if  split  among  sev- 
eral, the  seller  is  justified  in  figuring  on  a  closer  margin;  they  can 
sometimes  be  drawn  so  as  to  get  the  benefit  of  the  best  market. 
One  author  states:^ 

"By  taking  advantage  of  a  marked  upward  tendencj^  in  certain  lines 
at  certain  times,  heavy  buying  may  be  warranted,  but  the  fact  is  always 
present  that  depreciation  must  be  considered  in  connection  with  the 
probable  advance." 

Blanket  orders  often  can  be  drawn  so  as  to  eliminate  the  ques- 
tion of  depreciation. 

24.  Form  in  orders  and  contracts. — We  have  seen  that  there 
must  be  two  parties  to  every  contract  and  consideration  on  each 
side.  These  facts  are  again  mentioned  because  they  are  so  fre- 
quently lost  sight  of  by  buyers.  Too  many  orders  are  one-sided, 
stating  all  the  conditions  to  be  met  by  the  seller,  but  aside  from 
the  purchase  price,  none  of  the  conditions  to  be  fulfilled  by  the 
purchaser.  Where  an  order  involves  a  small  amount  of  money, 
form  is  relatively  of  small  importance,  but  it  is  easy  to  have  the 
form  correct. 

A  good  example  of  an  order  is  shown  on  page  126.  All  orders 
should  state  first  the  name  of  the  buyer  and  then  the  seller. 
An  adequate  description  of  the  article  ordered,  the  shipping 
address,  time  allowed  for  shipment,  price,  terms  and  such  special 
information  as  may  be  pertinent  should  be  included.  An  order, 
being  less  formidable  than  a  so-called  contract  is  usually  signed 
by  one  party  and  without  witness  of  the  signature.  It  is  a  good 
custom  to  attach  the  written  acceptance  to  a  duplicate  copy  of  the 

1  A.  W.  Shaw  Company. 


26 


PURCHASING 


order,  the  two  papers  standing  then  as  a  contract.  It  is  also  well 
to  attach  all  subsequent  correspondence,  in  regard  to  the  order, 
to  the  duplicate,  so  that  the  whole  history  of  the  transaction 
from  the  time  of  placing  is  in  one  file.  This  is  just  as  good  policy 
as  to  file  together  with  the  tabulated  bid  sheet  all  the  papers  up 
to  the  time  of  placing  the  order. 

To  facilitate  the  writing  of  orders,  and  to  be  sure  that  nothing 
is  omitted,  it  is  a  good  plan  to  prepare  dummies  such  as  the 
samplesshownonpages  130  to  133.  It  is  easy  to  pick  the  clauses 
that  fit  the  case  in  point,  fill  in  the  blanks  and  pass  to  the  stenog- 
rapher to  prepare  the  final  copy.  One  can  then  be  sure  of  the 
wording  and  yet  the  minimum  amount  of  time  of  both  the  stenog- 
rapher and  dictator  is  consumed. 

Contracts  are  as  varied  in  form  as  kinds  of  businesses.  They 
should  contain,  as  in  the  case  of  orders,  a  definite  and  expHcit 
statement  of  the  part  to  be  performed  by  each  party  thereto,  the 
terms,  money  and  other  considerations,  time  during  which  the 
parties  are  allowed  to  perform  their  parts,  penalty  for  non-ful- 
filment and  in  some  cases  bonus  and  penalty  clauses  should  be 
included.  Copies  of  all  papers  referred  to  should  be  attached  and 
made  a  part  of  the  contract.  Where  corporations  enter  into  con- 
tracts certified  copies  of  the  resolution  of  the  board  of  directors 
authorizing  the  officers  to  enter  into  a  contract  should,  although 
not  necessarily,  be  attached.  The  signatures  of  the  parties  should 
be  affixed  in  the  presence  of  witnesses.  In  some  cases  it  is  even 
well  to  affix  the  corporate  seal  and  to  have  the  signatures  ac- 
knowledged before  a  notary. 

25.  Summary. — We  have  seen,  therefore,  that  the  seven  sources 
of  assistance  which  the  purchaser  can  command  to  insure  obtain- 
ing the  right  article  will  be  of  equal  assistance  in  securing  the 
lowest  price.  We  have  seen  further  that  a  knowledge  of  prices 
and  demand  are  essential,  and  that  the  modus  operandi  of  secur- 
ing quotations  and  placing  orders  is  important.  There  are,  how- 
ever, two  specific  purchases  which  should  be  treated  separately. 
These  are  railroad  transportation  and  real  estate. 

26.  Railroad  freight  rates. — Every  purchaser  is  called  upon 
many  times  to  buy  something  whose  cost  is  largely  one  of  trans- 
portation. An  appreciable  saving  in  railroad  freight  charges 
can  be  effected  by  the  judicious  use  of  the  official  classification. 
This  manual  can  be  obtained  from  the  office  of  the  classification 
committee.     It  gives  the  rules  under  which  the  railroads  classify 


HOW  TO  OBTAIN  THE  LOWEST  PRICE  27 

freight  shipments  as  approved  by  the  Interstate  Commerce 
Commission,  as  well  as  state  commissions  having  jurisdiction. 
This  manual  also  gives  the  weight  constituting  a  minimum  car- 
load for  different  items,  the  class  of  almost  every  conceivable 
item  and  much  other  information  pertinent  to  special  classes  of 
shipments. 

As  is  well  known,  full  carload  shipments  are  transported  at  a  less 
rate  per  100  lb.  than  less  carload  shipments,  and  it  should  be 
mentioned  in  passing  that  they  travel  faster  also.  Sometimes 
it  is  cheaper  to  send  a  shipment  as  a  full  car  than  as  a  less  carload. 
For  example,  the  minimum  carload  weight  for  reinforcing  bars 
is  36,000  lb.  Reference  to  the  official  classification  shows  that 
less  than  carloads  (L.C.L.)  take  the  fourth  class,  while  carloads 
(C.L.)  take  the  fifth  class.  Now,  if  it  be  proposed  to  ship  32,000 
lb.  of  bars  from  Chicago  to  New  York  City,  on  applying  to  the 
freight  agent  we  will  learn  that  fourth  class  takes  a  rate  of 
$0.35  per  100  lb.  and  fifth  class  takes  a  rate  of  $0.30  per  100  lb. 
Evidently  in  this  case  it  would  be  cheaper  to  ship  a  L.C.L.  as 
a  C.L.  It  has  been  ruled  lately  that  the  railroad  company 
must  bill  as  L.C.L.  or  C.L.  according  to  which  is  the  cheaper, 
but  frequently  they  fail  to  do  so.  Hence  it  is  well  for  the 
shipper  to  watch  this  on  his  own  account. 

Many  articles,  especially  mixed  cagoes,  are  susceptible  of  differ- 
ent interpretations  as  to  their  proper  classification.  In  such  cases, 
it  is  the  custom  of  freight  agents  when  in  doubt  to  insert  on  the  bill 
of  lading  (B/L)  the  highest  rating.  They  do  this  on  the  theory 
that  it  is  safer  to  err  on  the  side  of  the  railroad  than  on  that  of  the 
customer.  On  the  other  hand,  if  the  shipper  will  take  the  trouble 
to  consult  the  official  classification  and  then  make  out  his  own 
bill  of  lading,  using  the  name  corresponding  to  the  lowest  con- 
sistent rating,  the  chances  are  that  the  freight  agent  will  not 
change  it.  We  will  suppose  a  contractor  wants  to  ship  some 
electrical  air  compressors.  The  freight  agent,  who  is  not  sup- 
posed to  be  a  technical  man,  would  be  most  likely  to  classify  them 
as  "electrical  machinery,"  which  goes  third  class.  The  shipper 
would,  however,  designate  them  on  his  B/L  as  "  Air  compressors" 
or  as  "Building  contractor's  outfit,"  either  of  which  classes 
takes  the  fifth  class  rate. 

Sometimes  two  cars  if  put  on  one  B/L  will  go  as  C.L.,  whereas 
they  would  take  the  higher  rate  L.C.L.  if  billed  separately. 
Sometimes  shipments  may  be  removed  from  the  car,  a  certain 


28  PURCHASING 

amount  of  manufacture  performed  and  the  material  then  placed 
in  another  car  and  sent  along,  all  on  a  through  car  rate.  This  is 
known  as  a  "stop-over  privilege."  Special  rates  are  granted 
sometimes  on  return  shipments,  that  is  to  say,  when  material 
is  returned  to  the  point  of  origin  over  the  same  route.  Special 
rules  apply  to  a  shipment  of  machinery  on  its  own  wheels.  In 
fact,  there  are  a  multitude  of  rules  which  the  shipper  or  con- 
signee should  know  rather  than  trust  to  the  freight  agent. 

It  is  not  too  late  to  correct  a  mistake  even  after  it  has  occurred, 
although  the  best  way  is  to  satisfy  yourself  regarding  the  classi- 
fication at  the  time  the  B/L  is  made  out.  Some  companies  have 
been  organized  to  make  a  business  of  auditing  the  old  freight  bills 
of  another  company,  making  claims  for  a  refund  to  the  claim 
agent  of  the  railroad  and  either  charging  for  the  service  a  flat 
rate  per  bill  so  audited,  or  else  making  the  audit  on  a  contingent 
basis  of  compensation,  usually  sphtting  with  the  client  the  re- 
fund secured.  The  author  has  tried  this  with  a  resulting  refund 
of  about  10  cts.  per  freight  bill  as  an  average  for  several  thousand. 
In  the  writer's  opinion  there  is  no  need  of  emplojang  outside 
assistance  for  this  purpose.  It  is  a  simple  matter  to  check  freight 
bills. 

The  time  is  not  long  past  when  the  railroads  were  very  slow  to 
pay  such  claims.  They  adopted  the  policy  of  wearing  out  the 
claimants  by  the  medium  of  lengthy  correspondence.  A  great 
change  has  taken  place  in  recent  years,  due  to  the  activity  of  the 
Interstate  Commerce  Commission  and  state  commissions.  Just 
claims  are  now  paid  fairly  promptly,  although  there  is  still  a 
marked  difference  in  the  policies  of  different  railroads  on  this 
score. 

27.  The  purchase  of  real  estate. — No  purchase  requires  more 
care  and  judgment  than  that  of  real  estate.  The  subject  is  one 
to  which  volumes  could  well  be  devoted  and  a  few  of  the  essen- 
tial considerations  are  all  that  will  be  discussed  here.  Many 
points  of  difference  between  the  purchase  of  real  and  personal 
property  exist.  In  arriving  at  a  fair  value  of  a  piece  of  property 
one  is  not  guided  by  the  sale  of  another  piece  exactly  identical, 
as  is  usually  the  case  with,  say,  a  piece  of  machinery.  Competi- 
tion takes  a  less  tangible  form  as  no  two  people  can  offer  the 
same  buyer  identical  properties.  The  question  of  appreciation 
and  depreciation  has  a  far  greater  bearing  on  the  value  of  real 
than  on  the  value  of  personal  property.     The  question  of  title  is 


HOW  TO  OBTAIN  THE  LOWEST  PRICE  29 

harder  to  determine.  Taxes  and  assessments  form  an  important 
consideration.  Restrictions,  liens,  character  of  neighborhood, 
size  and  shape  of  plot,  character  of  improvements,  transportation 
facilities — all  must  be  considered.  A  piece  of  real  estate  is  fixed. 
It  cannot  be  moved  about  as  can  personal  property,  should  sur- 
roundings make  a  change  desirable.  Finally,  the  amount  of 
money  involved  in  a  transfer  of  real  estate  is  usually  large,  when 
compared  to  the  average  personal  property  transfer.  For  the 
last  reason  alone,  the  importance  of  the  transaction  is  enhanced. 

The  first  thing  to  do  in  negotiating  for  a  piece  of  real  estate  is 
to  make  up  one's  mind  what  the  property  is  worth  to  the  pros- 
pective buyer,  independent  of  all  other  values  that  may  be  placed 
upon  it.  A  certain  piece  of  property  may  have  a  very  different 
value  to  one  buyer  than  to  another,  depending  on  the  use  to  which 
it  will  be  put.  This  is  true,  whether  the  buyer  wishes  the  property 
for  actual  use  as  a  farm,  factory  site,  dwelling,  or  for  pure  in- 
vestment purposes.  The  prospective  buyer  must  say,  "How 
much  will  the  property  return  to  me  in  the  form  of  crops,  rent  or 
other  form  of  income."  For  example,  if  there  is  a  factory  on  the 
premises,  what  rent  can  reasonably  be  expected,  judging  from 
rents  in  the  neighborhood  for  similar  properties.  An  idea  of 
fair  rental  value  having  been  formed,  what  will  be  the  taxes, 
upkeep,  assessments,  insurance  and  depreciation.  The  taxes 
are  a  matter  of  public  record.  Insurance  rates  can  be  obtained 
from  an  insurance  company,  and  the  yearly  charge  very  closely 
approximated.  Upkeep  is  much  harder  to  calculate.  On  an 
old  property,  one  should  ask  to  see  the  old  book  accounts  to 
determine  what  it  has  been.  Another  way  is  to  consult  with  some 
expert  qualified  to  form  a  judgment.  Still  another  way  is  to 
figure  the  probable  specific  items  that  will  be  periodically  re- 
quired, such  as  painting,  papering,  roofing,  etc.  Depreciation 
can  be  computed  by  judging  the  number  of  years  the  building  will 
be  serviceable,  and  having  assumed  a  value,  by  dividing  the  value 
by  this  number.  The  reckoning  can  be  revised  later.  The 
rental,  less  the  yearly  expenses,  leaves  the  net  income,  which, 
capitalized  at  whatever  per  cent,  is  desired  on  the  investment, 
gives  the  value  of  the  premises  to  the  buyer. 

It  may  be  stated  by  some  that  the  appreciation  of  the  value 
of  the  land  should  also  be  considered.  It  should,  of  course, 
but  not  in  arriving  at  a  fair  market  price.  A  shrewd  buyer  will 
always  have  an  eye  to  the  future  value  of  the  land,  but  he  should 


30  PURCHASING 

not  pay  much  for  this  expected  increase  unless  he  wishes  to  look 
on  the  purchase  as  a  speculation  rather  than  as  an  investment. 
The  price  paid  should  not  be  great  enough  to  prevent  a  fair  re- 
turn on  the  invested  money  from  the  outset.  The  buyer  should 
also  remember  that  many  real  estate  investments  prove  unprofit- 
able because  the  depreciation  on  the  outstanding  buildings, 
taxes  and  insurance  have  more  than  offset  the  expected  increase 
in  land  values.  A  distinction  should  be  made  between  land 
bought  for  use  and  investment  to  the  extent  that  increased  land 
values,  unless  reahzed  on  by  a  sale,  are  an  expense  rather  than  a 
source  of  income  to  the  owner. 

When  the  buyer's  judgment  has  been  formed  in  the  manner 
described,  a  loan  association  should  be  asked  to  name  what  loan 
it  will  make  on  the  property.  Loan  or  trust  companies  which 
make  a  business  of  loaning  money  on  real  estate  mortgages  have 
experts  who  can  tell  very  closely  the  worth  of  a  property.  They 
never  make  a  practice  of  loaning  more  than  60  per  cent,  of  the 
value  and  their  report  is  thus  a  good  guide  to  the  buyer. 

The  amount  of  taxes  levied  should  be  known  and  while  prop- 
erty seldom  is  taxed  in  full,  a  general  unwritten  rule  is  in  force  in 
most  localities  by  which  all  property  is  levied  for  a  certain  uni- 
form per  cent,  of  its  real  value.  The  tax  assessment  furnishes, 
therefore,  another  clue  to  the  prospective  purchaser. 

After  the  buyer  has  decided  what  the  fair  value  of  a  given  prop- 
erty is,  the  same  rules  of  strategy  will  apply  in  coming  to  an 
agreement  as  in  the  case  of  personal  property  elsewhere  described. 
Especially  should  it  be  remembered  that  there  are  many  extras 
which  the  buyer  should  insist  on  receiving  from  the  seller,  such 
as  search  of  title,  lawyers'  fees  in  drawing  up  contract  of  sale, 
notarial  fees,  all  accrued  taxes,  insurance  and  interest  on  mort- 
gage, if  any;  further,  any  physical  extras  where  possible. 

After  coming  to  a  verbal  agreement,  a  contract  of  sale  will  be 
made  between  the  parties.  This  contract  should  be  scrutinized 
as  carefully  by  the  buyer  as  are  the  final  deed  and  mortgage. 
Care  should  be  taken  never  to  "assume "  a  mortgage  unless  that  is 
necessary,  but  a  simple  agreement  to  pay  the  same  should  be 
sufficient.  In  this  way,  one  will  not  endanger  his  other  property 
on  failure  to  meet  the  mortgage.  The  buyer  should  never  make 
with  the  contract  of  sale  a  deposit  large  enough  to  allow  the  seller 
to  pay  the  real  estate  agent's  commission  in  full,  else  he  may  lose 
interest  in  the  transaction  between  the  signing  of  the  contract  of 


HOW  TO  OBTAIN  THE  LOWEST  PRICE  31 

sale  and  the  actual  transfer  of  the  property.  If  possible,  it  is 
always  better  to  arrange  for  the  seller  to  take  back  a  mortgage, 
even  though  it  is  for  a  short  term.  Thus,  if  any  unforeseen 
defects  arise  after  the  transfer,  the  buyer  will  have  a  lever  to  com- 
pel rectification  by  the  seller. 

In  conclusion,  always  have  an  insurance  policy  guaranteeing 
the  title  and  never  sign  any  paper  in  a  real  estate  transaction,  ex- 
cept "by  advice  of  counsel." 


CHAPTER  III 
HOW  TO  OBTAIN  PROMPT  DELIVERY 

28.  Importance  of  prompt  delivery. — Sometimes,  unless  the 
article  is  secured  in  due  season,  it  will  be  of  no  use  at  all,  or  at  least 
of  less  value.  If  the  department  store  does  not  receive  its  spe- 
cialties in  time  for  the  Christmas  trade,  the  stock  will  lie  idle  dur- 
ing the  entire  year.  If  the  millinery  doea  not  arrive  before  Easter, 
the  chance  of  sale  is  lost.  The  style  may  change  before  the  stock 
is  disposed  of.  The  necessity  for  prompt  delivery  is  felt  at  times 
in  all  lines  of  trade.  Time  is  sometimes  of  greater  moment  than 
either  price  or  quality. 

29.  The  bearing  of  previous  considerations  on  time. — Every- 
thing that  has  been  said  thus  far  about  the  importance  of  getting 
the  right  article  at  the  right  price  has  a  bearing  on  getting  it  also 
at  the  right  time.  Familiarity  with  the  use  to  which  it  is  intended 
to  put  the  article,  knowledge  of  the  article  itself,  knowledge 
of  the  source  of  supply  and  indeed  also  of  the  manufacturing 
processes  are  of  assistance  when  placing  rush  orders.  If  one  is 
perfectly  familiar  with  the  duty  the  article  is  to  perform,  and  it  is 
impossible  to  get  the  identical  thing  specified,  the  purchaser  can 
often  get  a  substitute  quickly  which  will  answer  the  purpose.  To 
do  this  without  knowing  the  service  required  would  be  to  court 
trouble.  Sometimes  a  slight  change  in  the  specifications  will 
facilitate  delivery  without  impairing  the  value  of  the  final  prod- 
uct. Here  one  will  find  of  value  a  knowledge  of  manufacturing 
processes.  Some  sellers  are  especially  equipped  to  produce  cer- 
tain articles  with  much  greater  speed  than  others,  and  a  knowledge 
of  the  sources  of  supply  will  guide  the  buyer  to  select  only  such 
sellers,  when  time  is  of  great  importance.  Knowledge  of  all  of 
these  subjects  will  enable  the  purchaser  to  combat  the  excuses  of 
the  seller  when  the  schedule  of  shipment  is  being  delayed. 

Any  manufacturer  can  do  wonders  if  properly  pushed  by  the 
buyer.  One  of  the  most  effective  ways  to  apply  this  pressure  is 
by  first  ascertaining  the  reason  for  delay  (this  often  involves 
knowledge  of  manufacturing  processes)  and  second,  by  pointing 

32 


HOW  TO  OBTAIN-  PROMPT  DELIVERY  33 

out  point  blank  to  the  manufacturer  what  this  reason  is  and  how 
it  can  be  overcome.  It  will  be  likely  that  the  manufacturer 
knew  this  all  along,  but  as  soon  as  he  discovers  that  the  buyer 
knows  it  also  and  will  not  brook  further  delay,  action  will  result. 
An  example  of  this  occurred  where  a  large  quantity  of  small 
pieces  of  artificial  stone  of  special  shapes  was  ordered.  During 
their  manufacture  it  became  apparent  that  their  delivery  would 
not  be  made  as  quickly  as  agreed  in  the  contract.  The  buyer 
called  this  to  the  attention  of  the  manufacturer,  who  gave  many 
excuses  and  stated  that  he  was  doing  all  that  was  possible.  The 
buyer  sent  an  investigator  who  reported  that  this  apparently  was 
the  case.  According  to  the  terms  of  the  contract,  the  buyer 
could  have  cancelled  the  order,  but  this  would  not  have  accom- 
plished the  essential  object  of  securing  the  deliver}^  of  the  mate- 
rial. The  buyer  then  went  personally  to  the  factory  and  the 
following  dialogue  ensued:  "How  many  men  have  you  em- 
ployed on  this  order?"  "All  of  our  men."  "How  many  molds 
are  you  using  on  this  order?"  "All  of  the  molds  which  are  the 
right  size."  "Why  don't  you  make  more  molds  so  that  you  can 
make  these  pieces  twice  as  fast?"  "It  would  take  so  long  to 
make  the  molds  that  the  order  would  be  finished  before  the  addi- 
tional molds  were  ready."  "Are  the  molds  which  you  have,  and 
which  you  are  not  using  because  they  are  not  the  right  size, 
too  large  or  too  small."  "Both  larger  and  smaller,"  "How 
many  of  the  large  size  have  you?"  "About  so  many."  "Then 
start  at  once  and  line  the  large  molds  so  that  they  can  be  used  for 
this  order.  Begin  to-day.  We  will  have  a  man  on  the  ground 
from  now  on  to  see  that  you  do.  If  you  don't  double  the  rate  of 
manufacture,  we  will  cancel  the  rest  of  the  order,  as  per  contract, 
build  the  remaining  pieces  ourselves  and  charge  the  excess  cost 
to  your  account."  Needless  to  say,  the  manufacturer  got  busy. 
The  manufacturer  knew  all  along  that  the  molds  could  be  lined, 
but  he  did  not  wish  to  incur  the  additional  expense  until  he  found 
the  buyer  was  familiar  with  his  process  and  meant  business. 

30.  Rush  orders. — Time  is  of  the  essence  of  rush  orders,  and 
the  written  confirmation  should  always  so  state.  This  is  advis- 
able in  case  it  becomes  necessary  to  bring  pressure  to  bear  on  the 
seller,  so  that  he  cannot  plead  ignorance  of  the  fact  that  time  was 
the  all-important  consideration.  It  has  become  common  practice 
to  stamp  across  the  face  of  such  orders  the  word  "RUSH." 
This  is  a  good  thing  to  do,  but  much  more  effective  if,  in  addition, 

3 


34  PURCHASING 

a  personal  letter  is  addressed  to  some  one  in  authority  in  the 
seller's  organization.  The  order  may  be  attached  to  this  letter 
and  the  letter  should  emphasize  time  only.  Rush  orders  should 
be  filed  separately,  watched  more  closely  and  handled  differently 
from  the  other  orders  in  every  respect.  Such  expedients  as 
"sending  by  hand,"  daily  telegraphic  or  mail  communications 
inquiring  as  to  the  status  of  the  order,  personal  calls  and  the  like 
serve  to  keep  the  order  in  the  limehght  and  show  the  seller  that 
the  buyer  is  in  earnest. 

The  telephone  is  probably  the  greatest  aid  in  rushing  orders. 
The  telephone  will  gain  an  immediate  audience.  So  also  are 
there  few  men  who  would  delay  the  opening  of  a  special  delivery 
letter.  In  this  day  of  fast  mails  the  special  delivery  stamp  saves 
more  time  after  dehvery  than  during  transit.  If  the  buyer  is  not 
strenuously  on  the  trail  of  the  order,  he  cannot  complain  if  the 
seller  falls  down.  Persistence  sometimes  causes  the  seller  to  push 
through  the  order  to  be  rid  of  the  annoyance  the  buyer  is  giving 
him.  Although  not  very  elegant,  the  expression  known  as 
"tickling"  the  seller  well  describes  this  method  which  often  pro- 
duces results. 

31.  Emergency  orders. — Some  firms  employ  a  special  form 
known  as  "emergency  orders."  These  are  usually  sent  by  hand 
or  special  delivery  and  are  couched  in  terms  which  show  un- 
mistakably that  speed  is  essential.  It  is  human  nature  to  take 
care  of  emergencies  first. 

32.  Mill  and  stock  orders. — In  most  lines  of  trade  supplies 
of  raw  materials  are  maintained  in  the  principal  trade  centers  for 
use  for  the  manufacture  of  rush  orders.  Many  finished  articles 
are  kept  in  stock  as  well.  Stock  orders  always  cost  more  than 
orders  which  can  wait  their  turn  at  the  mill  or  factory,  since  the 
jobber,  or  whoever  else  carries  the  stock,  must  add  enough  to  the 
mill  price  to  cover  the  rent  of  his  storehouse  and  interest  on  the 
money  invested  in  the  stock.  Also,  inasmuch  as  the  quantity 
in  any  stock  order  is  likely  to  be  less  than  in  a  mill  order,  a  larger 
margin  of  profit  will  be  figured  by  the  seller.  Furthermore,  the 
buyer  is  willing  to  pay  a  fancy  price  for  what  he  must  have 
quickly,  and  the  seller  knows  it. 

Where  a  special  price  is  paid  for  quick  delivery  the  order 
should  state  "to  be  made  from  stock  material — manufacture  to 
be  started  in  ( — )  days."  Sometimes  purchasers  unconsciously 
pay  stock  prices  for  mill  deliveries. 


HOW  TO  OBTAIN  PROMPT  DELIVERY  35 

33.  Bonus  and  penalty  clauses. — In  important  contracts  it  is 
quite  customary  to  insert  a  clause  stating  that  the  purchaser  will 
pay  a  certain  sum  per  clay  for  each  day  that  the  seller  improves 
on  the  contracted  date  of  shipment  or  delivery,  and  the  seller 
agrees  that  he  will  pay  or  cause  to  be  paid  to  the  purchaser  the 
same  sum  per  day  for  each  day's  delay  beyond  the  agreed  date  of 
shipment  or  delivery.  Such  bonus  and  penalty  clauses  are 
advantageous  under  certain  circumstances  and  when  properly 
framed.  In  no  case  should  the  amount  of  penalty  named 
be  much  out  of  proportion  to  the  actual  damage  that  would  be 
caused  by  delay  nor  should  the  bonus  be  much  out  of  proportion 
to  the  actual  benefit  that  would  accrue  by  reason  of  an  antici- 
pated date  of  shipment.  If  possible  the  bonus  and  penalty 
should  be  the  same  per  diem  because  experience  and  trial  have 
proved  that  they  can  then  be  upheld  more  readily  than  one-sided 
unreasonable  clauses.  In  fact,  it  has  been  fairly  well  determined 
that  where  a  penalty  is  provided  and  no  corresponding  bonus  is 
named,  even  when  the  amount  named  as  the  face  value  of  the 
contract  is  intended  to  be  sufficient  to  offset  the  lack  of  a  bonus 
provision,  such  a  penalty  clause  cannot  be  enforced. 

No  bonus  and  penalty  clause  should  be  relied  on  implicitly. 
It  will  be  found  of  use  principally  as  an  incentive  to  the  seller 
but  not  as  a  remedy  for  that  seller's  defects,  nor  will  it  even  be 
found  to  provide  adequate  satisfaction  for  any  damage  that  may 
occur. 

34.  Tracing  shipments. — Manufacturers  ordinarily  will  not 
accept  an  order  F.O.B.  delivery  point  and  guarantee  the  time 
when  the  material  will  reach  destination.  The  manufacturer 
assumes  that  if  he  puts  the  material  on  the  cars  in  contract  time, 
he  should  not  be  held  accountable  for  the  action  of  the  transporta- 
tion company,  over  which  he  has  no  control.  In  this  he  is  right 
ordinarily.  Therefore,  the  responsibihty  of  tracing  his  ship- 
ments after  they  leave  the  factory  often  devolves  on  the  purchaser. 

In  some  cases  it  is  well  to  have  the  manufacturer  put  a  "  tracer" 
on  his  shipment,  i.e.,  have  the  railroad  follow  the  car  movements 
by  wire  from  the  point  of  origin,  reporting  back  from  time  to  time. 
Such  a  tracer  can  be  put  on  at  the  same  time  from  the  point  of 
deUvery,  by  the  consignee,  provided  the  manufacturer  furnishes 
the  buyer  with  car  number,  initials  and  routing.  Such  tracers 
are  only  fairly  satisfactory.  They  locate  the  trouble  if  there  is  a 
delay,  but  usually  the  report  is  provokingly  slow  in  reaching  the 


36  PURCHASING 

buyer.  Their  main  good  lies  in  the  fact  that  the  railroad  com- 
pany is  not  very  Ukely  to  sidetrack  a  traced  car  unless  there  is  a 
very  good  reason,  such  as  a  breakdown.  Even  then,  the  con- 
tents of  such  a  car  will  be  transferred  more  quickly  than  one 
which  is  not  traced. 

The  best  way  to  trace  a  car  is  by  a  personal  representative. 
The  method  is  as  follows:  One  or  two  days  after  the  car  has  left 
the  point  of  origin  a  messenger  leaves  over  the  same  route  on  a 
slow  accommodation  train.  He  should  take  with  him,  of  course, 
the  car  number,  initials,  routing,  and  a  copy  of  the  bill  of  lading. 
He  should  sit  on  the  rear  platform  of  the  last  coach  and  keep  a 
sharp  lookout  for  his  shipment  whenever  a  siding  is  passed.  The 
character  of  some  shipments  will  make  them  recognizable  from  a 
long  distance.  For  example,  a  flat  car  with  contractor's  machinery 
is  readily  picked  out  from  a  number  of  other  cars.  Where 
possible,  box  cars,  in  order  to  spot  them  readily,  should  be  la- 
belled with  alarge  piece  of  white  cloth,  or  other  distinguishing  mark, 
before  leaving  the  factory.  Whenever  a  town  with  a  yard  of  some 
size  is  reached,  the  messenger  should  get  off  and  walk  through  it. 
If  he  does  not  see  his  shipment  he  should  consult  the  freight 
agent  to  ascertain  when  it  left  this  particular  pcint  and  where,  in 
most  likelihood,  the  shipment  would  be  held  up  ahead.  Freight 
agents  are  usually  accommodating,  if  properly  approached,  and 
they  can  give  much  assistance  to  the  tracer  if  they  wish  to  do  so. 
When  the  shipment  is  finally  located,  the  messenger  should  follow 
it  through  to  its  destination.  He  should  use  every  effort  to  get 
it  moving  if  he  finds  it  blocked.  Here,  again,  he  can  use  tact  to 
good  advantage  with  the  local  freight  agent. 

35.  Expecting  the  impossible. — Many  orders  are  placed  with 
dates  of  shipment  specified  which  really  are  impossible  to  meet. 
The  seller  often  knows  it  when  he  takes  the  order  and  the  buyer 
should  know  it.  The  seller  may  conclude  that  he  can  do  "as 
well  as  anyone  else"  and  so  agrees  to  the  impossible.  The  buyer 
is  likely,  too,  to  bend  all  his  efforts  toward  getting  the  contract 
with  the  "time  he  wishes"  signed  up  and  to  use  too  little  effort 
to  ascertain  what  is  possible.  In  such  cases,  the  buyer  usually 
gets  the  hot  end  of  the  poker.  When  the  order  is  partially  com- 
pleted and  he  awakens  to  the  fact  that  the  scheduled  time  of 
deUvory  will  not  be  met,  it  is  too  late  for  him  to  take  advantage 
of  cancellation  clauses.  His  only  resource  is  to  sit  by  and  feel 
injured. 


HOW  TO  OBTAIN  PROMPT  DELIVERY  37 

Some  purchasers  also  make  the  mistake  of  habitually  com- 
plaining about  the  delivery  of  their  orders  whether  speed  is  of 
importance  or  not.  In  time  such  companies  get  the  reputation 
of  being  "chronic  growlers"  and  their  complaints  are  discounted 
accordingly, 

36.  Obviating  rush  orders  by  perpetual  inventory. — The  surest 
way  to  obtain  goods  on  time  is  to  order  them  sufficiently  long  in 
advance.  This,  as  we  have  seen,  is  not  always  possible,  yet  it  is 
questionable  if  it  is  not  lack  of  system,  as  often  as  circumstances 
beyond  the  buyer's  control,  that  leads  to  the  placing  of  rush  orders. 
In  many  forms  of  business  the  need  of  many  classes  of  goods  is 
fairly  steady.  Where  stockrooms  are  maintained  to  house  these 
goods,  the  clerk  in  charge  should  keep  a  running  or  perpetual 
inventory.  Beginning  with  the  regular  classified  inventory, 
taken  at  the  end  of  the  previous  year  when  actual  stock  count 
was  taken,  he  will  make  additions  to  this  list  each  time  goods  are 
received  into  stock  and  he  will  make  subtractions  from  this  list 
each  time  goods  are  taken  out  of  stock.  He  will,  without 
instruction,  put  in  a  requisition  on  the  purchasing  agent  (or 
accounting  department,  as  the  case  may  be)  each  time  this  in- 
ventory shows  that  a  given  item  has  fallen  below  a  certain  pre- 
determined quantity.  For  example,  we  will  suppose  a  paper  mill 
uses  aniline  blue  at  the  rate  of  1,500  lb.  per  month.  We  will  also 
suppose  it  requires  a  maximum  of  thirty  days  to  get  a  new  consign- 
ment after  an  order  is  placed  and  that  therefore,  to  be  on  the  safe 
side,  the  stock  clerk  is  told  never  to  let  his  stock  get  below  3,000 
lb.  or  a  two  months'  run.  A  proper  perpetual  inventory  would 
show  the  stock  clerk  when  to  order  without  depending  on  his 
memory,  or  on  his  actual  count  of  stock,  which  is  often  difficult. 

Some  concerns  have  this  inventory  checked  up  at  regular  in- 
tervals, say  weekly,  by  the  purchasing  department,  to  make  sure 
no  item  is  overlooked.  Most  concerns,  which  do  not  feel  they 
would  be  warranted  in  keeping  a  perpetual  inventory,  neverthe- 
less do  go  over  their  stock  at  definite  stated  intervals  and  thus 
approximate  the  same  result. 

The  question  of  when  to  order  is  just  as  important  as  what  to 
order  or  where  to  order.  Space  does  not  permit  justice  to  be  done 
to  this  question  here.  It  is,  however,  touched  on  in  the  chapter 
on  departmental  organization. 

37.  Summary. — To  conclude:  Knowledge  of  the  article  to  be 
purchased,  of  its  ultimate  use,  of  process  of  manufacture,   of 


3g  PURCHASING 

allowable  substitutes  and  of  the  source  of  supply;  the  employ- 
ment of  suitable  forms;  the  use  of  the  bonus  and  penalty  system; 
the  following  up  of  orders  and  shipments  and  the  utilization  of 
stock  supplies  are  all  factors  that  have  their  bearing  in  securing 
prompt  shipments.  The  need  of  a  running  inventory  must  also 
be  kept  in  mind. 


CHAPTER  IV 
MAKING  THE  PURCHASE  CONFORM  TO  FIXED  POLICY 

38.  Advantage  of  a  definite  policy. — Most  corporations  and 
individuals  have  a  definite  general  policy  affecting  all  depart- 
ments of  their  business.  For  example,  one  corporation  will  make 
a  practice  of  buying  only  the  highest  grade  of  materials  while 
another  will  pursue  the  opposite  policy.  One  corporation  will 
discount  all  of  its  bills,  in  which  case  terms  become  of  great  im- 
portance. One  business  house  will  place  its  orders  on  the  basis 
of  merit  only,  always  giving  its  orders  to  the  low  bidders,  other 
things  being  equal;  while  another  house  will  trj^  to  place  its  orders 
where  it  will  get  the  most  return  by  way  of  favors  or  reciprocal 
business,  without  so  much  regard  for  price.  One  company  will 
display  the  results  of  competitive  bidding  to  all  bidders,  while 
another  company  will  keep  the  bids  secret.  One  company  will 
try  to  confine  its  purchases  in  any  one  line  to  one  or  two  sellers, 
while  another  will  shop  the  entire  market.  In  general,  some 
companies  maintain  a  high-class,  open-and-above-board,  clean- 
cut  attitude  toward  those  from  whom  they  buy,  while  other  com- 
panies resort  to  sharp  practice,  take  advantage  of  the  sellers,  and 
make  each  order  stand  on  its  own  feet  without  regard  to  future 
orders.  Some  houses  even  use  questionable  methods.  Of  course, 
no  business  house  can  be  classified  rigidly,  but  these  and  other 
policies  do  exist,  as  often  by  chance  as  by  choice.  The  employees 
of  both  buyer  and  seller  are  very  quick  to  sense  these  policies 
which  usually  emanate  from  the  heads  of  the  firm. 

It  is  an  advantage  to  have  a  definite  policy  in  certain  things, 
and  if  that  policy  is  a  good  one,  it  is  an  advantage  to  make  it  well 
known. 

A  good  policy  is  often  advertised  extensively  so  that  it  becomes 
one  of  the  firm's  greatest  assets.  This  is  particularly  true  in  the 
selhng  department,  but  the  buying  department  cannot  fail  to 
recognize  the  same  principle  if  it  w^ould  secure  the  greatest  ad- 
vantage. Corporations,  no  less  than  individuals,  take  their  stand 
in  the  business  community  in  accordance  with  the  characteristics 
which  they  display.     Just  as  an  automobile  company  known  by 

39 


40  PURCHASING 

the  high  character  of  its  cars  and  the  readiness  with  which  it 
makes  good  any  defects  will  attract  high-class  trade,  so  also  will 
a  company  known  by  its  square  treatment  of  those  from  whom  it 
buys  attract  the  highest  class  of  sellers.  It  is  astonishing  how 
shrewdly  salesmen  size  up  the  different  customers,  and  how  they 
adapt  their  methods  accordingly.  It  is  also  astonishing  how  hard 
it  is  for  some  companies  with  a  questionable  reputation,  or  with  a 
reputation  for  anything  that  works  a  hardship  on  the  seller,  to 
obtain  good  service,  or  sometimes  any  service  at  all  from  high- 
class  sellers.  Speaking  of  one  phase  of  this  question,  that  of  slow 
pay,  W.  Richmond  Smith  says: 

"The  enormous  volume  of  vouchers  for  the  payment  of  supplies, 
which  have  to  be  prepared  and  recorded  by  the  purchasing  departments 
(of  New  York  City)  and  recorded  and  paid  by  the  comptroller,  due  to 
the  splitting  up  of  quantities  of  supplies  purchased  upon  contract  and 
the  flagrant  abuse  of  the  open  market  order  method  of  purchasing,  un- 
necessarily delays  the  payment  of  bills  for  supplies  purchased  by  the 
city.  Not  only  does  this  delay  very  considerably  increase  the  cost 
of  supplies  directly  on  the  prices  bid  on  contracts,  but  it  has  a  very  great 
effect  in  deterring  the  best  business  firms  in  the  city  from  competing  for 
the  city's  business.  This  is  one  of  the  principal  reasons  why  irre- 
sponsible and  high-priced  middlemen  are  so  often  the  successful  bidders 
for  the  City's  supply  contracts." 

On  the  other  hand,  companies  of  high  repute  often  can  get  ex- 
ceptional service,  just  as  they,  in  turn,  get  exceptional  prices 
for  their  own  output. 

39.  Important  for  purchaser  to  know  the  policy. — Every  pur- 
chaser should  know  the  policy  of  the  individual  or  corporation 
that  he  represents.  Quoting  from  Professor  Butler,  "He  must 
know  (1)  its  financial  resources,  so  that  he  may  determine  whether 
he  is  in  a  position  to  demand  and  receive  the  most  advantageous 
credit  terms;  (2)  in  a  general  way  at  least  he  must  know  the 
usual  and  unusual  demands  upon  the  available  funds  of  the  house, 
so  that  he  may  be  able  to  determine  the  possibility  of  any  heavy 
buying  that  may  seem  desirable;  (3)  he  must  know  the  attitude 
of  the  owner  or  the  directors  toward  the  question  of  expansion  or 
curtailment  of  production,  so  that  if  there  are  any  plans  in  con- 
templation affecting  the  kind  and  quantity  of  the  output,  he  may 
be  able  to  govern  his  purchasing  accordingly."  If  he  sees  that 
the  policy  is  good,  he  should  attempt  to  impress  it  on  those  with 
whom  he  comes  in  contact.     If  he  sees  it  is  bad,  he  should  advo- 


MAKING   THE  PURCHASE  CONFORM   TO  FIXED  POLICY       41 

cate  a  change,  bringing  to  the  attention  of  his  superiors  the  advan- 
tages of  a  change.  Every  purchaser  should  formulate  his  own 
minor  policies  and  adhere  to  them  as  closely  as  may  be,  so  that 
he  takes  on  a  known  character, 

40.  Different  policies  for  different  businesses. — It  is  impossible 
to  state  definitely  just  what  policies  should  be  adopted  by  cor- 
porations with  respect  to  their  dealings  with  sellers.  This  will 
depend  on  the  size,  financial  strength,  character  of  business 
engaged  in,  affiliations,  etc.  For  example,  a  concern  which  is 
weak  financially  cannot  be  as  liberal  in  its  attitude  as  one  that  is 
strong.  However,  some  of  the  advantages  of  specific  policies 
can  be  set  down. 

The  small  or  comparatively  small  purchaser  will  usually  find 
that  it  pays  to  deal  principally  with  a  few  houses  in  each  line. 
Cordial  relations  are  thus  developed  so  that  when  anything  is 
wanted  in  a  hurry,  or  other  favors  are  desired,  the  seller  will  feel 
disposed  to  grant  such  requests.  When  the  volume  of  purchases 
is  small,  the  buyer  cannot  hope  to  create  a  standing  that  will  be 
known  throughout  the  country,  but  he  can  obtain  this  standing 
with  a  few  of  each  class.  It  may  seem  like  money  wasted  to  pay 
more  sometimes  under  these  circumstances,  but  the  difference, 
with  interest,  will  return  sooner  or  later. 

On  the  foregoing  point,  Mr.  Stone,  president  of  the  Tucker 
Tool  &  Machine  Company,  in  a  letter  to  the  author,  said : 

"There  is  a  great  deal  to  be  said  on  the  subject  and  I  believe  that 
considerable  light  could  be  shed  on  it  from  the  viewpoint  of  the  man 
who  calls  upon  the  purchaser  and  sells  to  him.  You  may  not  know  that 
many  of  us  who  are  otherwise  keen  competitors  in  business  will  often 
get  together  and  sit  down  and  talk  over  the  personnel  of  the  different 
men  we  sell  goods  to,  and  the  man  who  can  come  through  such  an 
ordeal  and  be  well  spoken  of  is  mighty  sure  to  get  from  the  people  who 
call  upon  him  any  inside  or  special  terms  that  there  may  be  going." 

The  same  idea  was  expressed  by  another,  thus: 

^"It  is  common  practice  for  a  salesman  who  has  some  real  bargain  to 
offer  to  place  the  proposition  only  before  those  buyers  whom  he  counts 
as  his  personal  friends." 

"A  friendly  salesman  can  also  do  a  great  deal  in  the  way  of  facilitat- 
ing deliveries,  obtaining  favorable  credit  terms,  and  giving  the  purchaser 
trade  news  that  is  of  direct  value  to  him  in  his  work.  It  is  distinctly 
worth  while  for  the  buyer  to  cultivate  the  good  will  and  friendship  of 

1  Prof.  Ralph  Starr  Butler,  Alexander  Hamilton  Institute. 


42  PURCHASING 

the  men  with  whom  he  deals,  and  the  most  potent  factor  in  this  en- 
deavor is  the  possession  of  the  quality  of  tact." 

The  following  extract  from  the  New  York  Times  Annalist  on 
"The  Value  of  Business  Constancy,"  while  pertaining  particu- 
larly to  the  market  for  securities,  expresses  the  principle  govern- 
ing fixed  relations  in  any  market. 

"At  this  juncture  comes  the  news  that  the  City  of  Montreal  which 
has  recently  floated  loans  in  London  at  over  A}4  per  cent.,  is  turning  to 
New  York  for  more  favorable  terms.  To  put  the  matter  bluntly,  it 
has  for  the  moment  sucked  the  European  market  dry — at  least  it  has 
sucked  it  dry  at  the  terms  that  it  is  disposed  to  offer,  and  consequently 
it  appeals  to  New  York  for  help.  We  do  r.ot  imagine  that  the  bonds 
will  stay  in  America  for  good  and  all,  but  rather  believe  that  they  are 
finding  a  temporary  resting  place,  to  be  exported  at  a  profit  to  London, 
their  traditional  home,  when  things  look  brighter  here.  They  are 
waiting  under  cover  till  the  clouds  roll  by. 

"That  Montreal  has  a  perfect  right  to  turn  elsewhere  than  to  London 
for  her  finance,  and  that  New  York  has  an  equally  good  right  to  make  a 
profit  as  intermediary  when  she  sees  the  opportunity  no  one  would 
deny.  But  it  is  doubtful  whether  the  Canadian  borrower  is  altogether 
prudent  in  changing  his  market,  and  whether  the  New  York  lender  will 
find  it  altogether  easy  to  "shoot"  the  bonds  on  London  when  the  time 
comes.  A  market  is  a  ticklish  thing,  and  the  wise  man — whatever  his 
business,  whether  he  deals  in  scrip  or  bonds,  in  insurance  policies,  in 
soft  goods,  or  in  frozen  meat — does  not  readily  change  it  unless  he 
sees  his  way  clear  before  him.  We  sometimes  speak  of  London,  and 
particularly  of  the  City,  as  though  it  were  one  great  market,  whereas 
in  fact  it  is  a  conglomeration  of  thousands  of  markets,  sympathetic 
markets,  no  doubt,  but  at  the  same  time  distinct  from  one  another  and 
controlled  by  specialists  who  make  one  particular  business  their  peculiar 
study.  The  Stock  Exchange  contains  a  thousand  different  markets  for 
securities,  Lloyd's  a  hundred  different  markets  for  insurance,  Mincing 
Lane  a  hundred  different  markets  for  produce,  Coleman  Street  many 
different  markets  for  wool,  and  so  on.  Each  has  its  own  recognized 
speciality,  its  own  record  and  its  own  experience.  Most  of  them 
are  essentially  conservative,  and  will  take  business  that  they  are  accus- 
tomed to  from  force  of  habit  and  because  they  do  not  like  to  destroy  old 
connections,  even  though  they  do  not  care  for  the  business  itself. 
Every  time  you  deal  with  a  man  for  one  particular  piece  of  business 
you  make  it  easier  to  repeat  the  deal,  and  incidentally  most  difficult  to 
place  the  business  with  his  neighbors.  You  are  emphasizing  the  fact 
that  he  rather  than  the  man  next  door  is  'the  market.' 

"And  here  lies  the  pecuUar  danger  of  changing  your  market,  for  busi- 


MAKING  THE  PURCHASE  CONFORM  TO  FIXED  POLICY       43 

ness,  in  Europe  at  any  rate,  goes  largely  by  routine,  and  every  alteration 
raises  a  suspicion  against  the  business.  '  Why  do  you  come  to  us  instead 
of  to  So-and-So'  is  the  natural  question  to  ask  a  man  who  comes  along 
to  a  fresh  market.  'He  specializes  in  this  class  of  business;  he  has  always 
taken  it;  there  must  surely  be  something  wrong  with  it  when  you  bring 
it  to  me  rather  than  to  him.'  And  the  market  once  changed  is  not  easily 
restored,  for  when  you  take  the  business  back  to  your  old  friend  he  asks 
the  same  question  in  another  form:  'Why  offer  me  this  business  now, 
when  you  took  it  away  twelve  months  ago?  Has  So-and-So  had  enough 
of  it,  that  you  take  it  back  again  from  him?' 

"It  is  the  danger  of  getting  involved  in  difficulties  of  this  kind  that 
makes  borrowers  chary  of  looking  out  for  fresh  markets  in  times  of 
stringency.  The  Balkan  States,  despite  the  onerous  terms  imposed  by 
Paris  bankers,  still  prefer  to  place  their  loans  in  Paris  rather  than 
engineer  a  fresh  market  in  London,  and  probably  they  are  wise  to  do  so, 
for  any  loan  brought  to  London  by  them  would  be  suspected,  and  when 
the  business  went  back  to  Paris,  Paris  would  probably  screw  its  terms  up 
to  teach  the  borrowers  a  lesson  in  business  constancy." 

The  larger  the  corporation,  however,  the  more  impersonal  it 
becomes  and  the  greater  the  advantage  of  placing  the  business  on 
the  basis  of  merit  and  under  a  system  of  competitive  bidding,  even 
though  the  business  does  not  always  go  the  route  the  purchaser 
would  prefer.  Sellers  are  always  anxious  to  supply  the  large 
buyers  and  will  respect  a  fair  clean  policy. 

Where  there  are  interlocking  interests,  that  is  to  say,  where 
some  of  the  owners  of  the  business  are  also  part  owners  of  the 
seller's  business,  competition  may  be  restricted.  In  such  cases, 
it  is  best  not  to  ask  for  general  bids  for  the  purpose  of  pretending 
that  competition  exists.  The  seller  soon  realizes  that  he  is  shut 
out  and  will  not  figure  closely.  The  figures  are,  therefore,  of  no 
value  and  no  one  has  benefited.  In  fact,  the  buyer  has  been 
injured,  for  should  favors  or  genuine  figures  be  really  wanted 
from  the  outsider  at  some  other  time,  he  will  not  respond  because 
of  his  belief  that  he  is  hearing  again  the  cry  of  "  Wolf". 

41.  Personal  relations  between  buyer  and  seller. — Friendship 
has  been  and  always  will  be  an  important  factor  for  the  seller  and 
buyer.  Human  nature  is  stronger  than  rules.  Happily,  the 
days  when  friendship  alone — when  bribes  and  other  inducements 
of  a  doubtful  nature  were  the  controlling  factors  in  buying — are 
passing.  But  friendship  on  a  proper  plane  can  be  of  advantage 
to  both  parties,  and  is  to  be  encouraged.  Purchasing  agents  are 
often  called  upon  to  buy  something  without  their  ken.     It  is  both 


44  PURCHASING 

natural  and  proper  that  they  confer  with  their  friends  to  learn 
the  best  place  to  buy  such  material  and  what  a  fair  price  would  be. 
In  busy  seasons,  when  the  seller  has  his  shop  full  and  is  inde- 
pendent, he  may  go  out  of  his  way  to  please  an  old  customer. 
He  will  take  an  order  from  a  buyer  who  has  maintained  friendly 
relations,  whereas  he  might  not  if  the  relations  had  been  strictly 
formal.  There  are  many  times  when  a  buyer  desires  a  small 
quantity  of  material  for  which  any  price  the  seller  can  reason- 
ably ask  is  too  low  to  warrant  the  interruption  of  his  shop  routine 
in  order  to  please  the  customer.  Here,  again,  friendship,  not 
money,  will  produce  results. 

Friendship  is  a  matter  apart  from  money.  It  costs  less  than 
almost  anything  else  and  pays  a  handsome  return.  One  pur- 
chasing agent  will  make  an  enemy  of  a  seller  when  he  informs  him 
that  the  order  was  placed  somewhere  else.  Another  purchasing 
agent  will  make  a  friend  under  the  same  circumstances.  No  one 
doubts  which  is  the  better  procedure.  Courtesy,  plain  dealing 
and  small  favors  which  cost  nothing  more  than  a  little  time  and 
effort  are  things  which  are  appreciated  by  the  seller  and  which 
return  multiplied  when  least  expected. 

42.  Summary. — To  conclude:  Every  business  house  should  have 
definite  general  policies,  and  these  policies  should  be  good  ones. 
They  will  become  an  asset  if  properly  put  before  the  public 
through  the  buying  department,  as  well  as  through  the  selling 
department.  The  buying  department  should  not  pursue  a  policy 
counter  to  the  other  departments  of  the  same  company.  The 
specific  policies  will  be  different  for  different  businesses,  and  for 
different  sizes  of  the  same  business.  Finally,  it  is  clear  that 
cordial  relations  between  buyer  and  seller  should  be  encouraged 
as  a  part  of  any  policy. 


CHAPTER  V 
HOW  TO  OBTAIN  FAVORABLE  TERMS 

43,  Meaning  of  terms. — It  is  customary  to  state  in  all  orders 
and  contracts  the  date  or  dates  on  which  payments  shall  be  made, 
the  discount  allowed  from  the  prices  named  for  early  payment  and 
any  special  arrangements  which  will  affect  the  amount  to  be  paid 
ultimately  to  the  seller  by  the  buyer.  In  other  words,  the 
"terms"  are  usually  stated.  Where  not  stated,  it  is  understood 
that  the  terms  which  are  in  common  usage  in  the  specific  line  of 
trade  will  apply.  It  is  much  better  to  state  the  terms  to  avoid 
misunderstanding. 

44.  Importance  of  favorable  terms. — When  it  is  remembered 
that  some  businesses,  which  have  little  or  no  working  capital, 
make  a  quick  "turnover"  of  their  stocks  and  receive  the  money 
from  their  customers  before  they,  in  turn,  pay  for  them,  it  will 
be  seen  that  terms  are  sometimes  of  exceeding  importance. 
The  failure  of  such  firms  to  arrange  for  sufficient  time  to  make 
collections  with  which  to  pay  their  own  creditors  would  be  dis- 
astrous. Again,  many  business  houses  borrow  a  large  part  of 
their  working  capital  from  banks,  paying  from  4  per  cent,  to  6 
per  cent,  although  the  margin  of  profit  on  their  goods  may  be  very 
small.  Such  houses  will  place  great  stress  on  the  terms  of  their 
purchases  as  well  as  on  the  terms  of  their  sales,  as  the  longer  the 
terms  granted  by  those  from  whom  they  buy,  the  less  working 
capital  will  they  have  to  borrow  at  the  bank.  If  such  concerns 
paid  promptly  for  their  goods  and  did  not  receive  pay  promptly 
from  their  customers,  their  net  yearly  earnings  might  be  consumed 
in  paying  bank  interest. 

Some  idea  of  the  importance  of  cash  discounts  can  be  gained 
from  the  following  table.  For  example,  one  very  common  cus- 
tom is  to  specify  2  per  cent.,  10  days,  30  days  net.  If  the  bill  is 
not  discounted  it  means  that  the  debtor  prefers  to  wait  20  days 
longer  and  pay  2  per  cent.  more.  Now,  2  per  cent,  for  20  days  is 
equivalent  to  36  per  cent,  per  annum,  a  very  high  rate  of  interest, 
especially  for  a  short  loan  .which  is  what  the  20  day  extension 

45 


46 


PURCHASING 


practically  amounts  to.  If  a  banker  asked  36  per  cent.,  even  if 
he  were  legally  allowed  to  do  so,  some  very  hard  thmgs  would  be 
said  of  him  by  the  very  man  who  does  not  discount  his  bills. 

Cash  Discounts 


Net  time 


Cash  discount 


30  days . 
60  days . 
90  days. 

30  days. 
60  days . 
90  days . 


3^  of  1  per  cent.,  10  days. 
}4oil  per  cent.,  10  days. 
]4  oi  I  per  cent.,  10  days. 


Equivalent  per  cent, 
per  annum 


1  per  cent.,  10  days . 
1  per  cent.,  10  days. 
1  per  cent.,  10  days . 


30  days 2  per  cent.,  10  days . 

2  per  cent.,  10  days. 

2  per  cent.,  10  days. 

3  per  cent.,  10  days. 
3  per  cent.,  10  days. 
3  per  cent.,  10  daj's. 

2  per  cent.,  30  days . 
2  per  cent.,  30  days. 


60  days. 
90  days. 

30  days. 
60  days. 
90  days . 

60  days. 
90  davs . 


9 

3% 
2K 

18 

36 

142^ 
9 

54 

21% 

24 
12 


45.  Usual  terms  in  different  lines  of  trade. — The  following 
table  gives  the  terms  which  are  usual  in  some  lines  of  trade,  and 
which  are  allowed  by  manufacturers  or  dealers  to  consumers. 

Usual  Terms 

Acetylene,  commercial No  cash  discount.  ...   30  days  net. 

Adding  machines 2  per  cent.,  10  days. .   30  days  net. 

Aluminium No  cash  discount ....   30  days  net. 

Artificial  stone No  cash  discount ....   Special. 

Asbestos,  mechanical  supplies ...  2  per  cent.,  10  days . .  30  days  net. 

Asphalt 2  per  cent.,  10  da3'S. .   60  days  net. 

Asphalt 1  per  cent.,  10  days. .   60  days  net. 

Bars,  iron  and  steel 3>^  per  cent.,  10  days.  30  days  net. 

Bolts  and  nuts 30  days  net. 

Bricks,  fire No  cash  discount ....  30  days  net. 

Brick,  paving SOfi  per  M,  20  days .  .  30  days  net. 

#Carpets 4  per  cent.,  10  days. .   60  days  net. 

ICarpets  (advance  orders) 90  days  net. 

Castings,  iron 2  per  cent.,  10  days. .   30  days  net. 


HOW  TO  OBTAIN  FAVORABLE  TERMS  47 

Castings,  steel 1  per  cent.,  15  days. .  30  days  net. 

Cast  iron  pipe,  gas No  cash  discount ....  30  days  net. 

Cast  iron  pipe,  water No  cash  discount ....  30  days  net. 

Cement l0  per  bbl.,  10  days. .  30  days  net. 

#China 2  per  cent.,  10  days. .  30  days  net. 

Cigars,  lots  over  1,000 4  per  cent.,  10  days. .  4  months  net. 

Cigars,  lots  under  1,000 2  per  cent.,  10  days. .  60  days  net. 

Coal No  cash  discount. .  .  .  20th  of  month  fol- 
lowing shipment 
net. 

Cutlery 2  per  cent.,  10  days. .  60  days  net. 

Diving  outfits 2  per  cent.,  10  days. .  30  days  net. 

Drafting-room  supplies 5  per  cent.,  30  days. .  60  days  net. 

Drugs No  cash  discount. ...  30  days  net. 

Dynamite 2  per  cent.,  10  days. .  30  days  net. 

Earthenware 1  per  cent.,  10  days. .  30  days  net. 

Electrical  supplies 30  days  net. 

Electric  machinery No  cash  discount ....  30  days  net. 

Express No  cash  discount ....  Special. 

#Fabric 2  to  6  per  cent.,  cash.  60  days  net. 

Freight No  cash  discount ....  Special. 

#Furniture 2  per  cent.,  10  days. .  30  days  net. 

ifFurs 2  to  10  per  cent.  cash.  Advance    orders 

dated  Dec.  1st. 

Gasoline 30  days  net. 

Glass,  specialties 2  per  cent.,  10  days. .  30  days  net. 

Glass,  window 2  per  cent.,  10  days. .  30  days  net. 

#Gloves,  silk 6  per  cent.,  10  days. .  60  days  net. 

#Gloves 0  to  6  per  cent,  cash .  0  to  60  days  net. 

Groceries,  sundries 1  per  cent.,  10  days. .  30  days  net. 

Hardware,  heavy 2  per  cent.,  10  days. .  60  days  net. 

#Hosiery 0  to  6  per  cent.  cash..  0  to  60  days  net. 

Ink 2  per  cent.,  10  days. .  30  days  net. 

Instruments,  technical 2  per  cent.,  10  days. .  30  days  net. 

Insurance,  marine 3  per  cent.,  10  days. .  30  days  net. 

Iron,  malleable 30  days  net. 

Iron,  structural 30  days  net. 

Junk No  cash  discount ....  Due  receipt  B/L. 

Kerosene 30  days  net. 

Labor No  cash  discount. .  . .  Special. 

#Lace 6  to  7  per  cent.  cash..  60  days  net. 

Leather,  belting 4  per  cent.,  10  days. .  90  days  net. 


48  PURCHASING 

Leather,  belting 3  per  cent.,  30  days. .  90  days  net. 

Lumber 2  per  cent.,  30  days. .   60  days  net. 

Machinery,  parts 30  days  net. 

Machinery,  standard 30  days  net. 

Machinery,  special Special Special. 

^Millinery 6  to  7  per  cent.  cash..  60  days  net. 

Nails 2  per  cent.,  10  days. .   30  days  net. 

#Notions 0  to  7  per  cent.  cash..  60  days  net. 

Oil,  refined 1  per  cent.,  10  days. .   30  days  net. 

Oxygen 30  days  net. 

Packing,  steam 2  per  cent.,  10  days. .   30  days  net. 

#Piece  goods,  woolen 2to6percent.,  lOdays  60  days  net. 

#Piece  goods,  cotton 2  per  cent.,  10  days. .   60  days  net. 

Pipe  and  fittings 2  per  cent.,  10  days. .   60  days  net. 

#Ready-made  goods,  ladies 3  per  cent.,  10  days. .   30  days  net. 

Rope,  Manila 13^  per  cent.,  10  days.  30  days  net. 

Rope,  wire 2  per  cent.,  10  days. .   30  days  net. 

Rent Cash,  in  advance. 

Rubber  goods 2  per  cent.,  10  days. .  30  days  net. 

Second-hand,  all  classes No  cash  discount.  .  .  .  Due  receipt  B/L. 

Shapes,  iron  and  steel ^^  per  cent.,  10  days.  30  days  net. 

#Shoes 0  to  2  per  cent.  cash..  0  to  30  days  net. 

Slate 2  per  cent.,  10  days . .  30  days  net. 

Stationery  and  office  supplies 30  days  net. 

Sewer  pipe 2  per  cent.,  15  days. .  30  days  net. 

Tea 3  per  cent.,  10  days. .  4  months  net. 

Tools,  mechanics 2  per  cent.,  10  days. .  60  days  net. 

Tools,  precision No  cash  discount ....  30  days  net. 

Tools,  machine 1  per  cent.,  10  days.  .  30  days  net. 

Valves 2  per  cent.,  10  days.    30  days  net. 

Valves  (and) 2  per    cent.,    10th    of 

month  following ....  30  days  net. 

Waste,  cotton 1  per  cent.,  10  days. .   30  days  net. 

(Note. — Items  marked  #  refer  to  terms  allowed  by  jobber.) 

The  rates  of  cash  discount  and  advance  datings  given  in  the 
foregoing  table  are  not  to  be  taken  as  hard  and  fixed.  One 
with  a  high  rating,  a  reputation  for  prompt  payment,  and 
one  who  is  sound  in  general,  financially,  can  always  get  better 


HOW  TO  OBTAIN  FAVORABLE  TERMS  49 

terms  than  one  who  is  weak,  ''slow  pay,"  and  who  does  not 
enjoy  a  high  rating.  Speaking  of  this  Mr.  Llewellyn  of  the 
Carnegie  Steel  Co.  said  to  the  author: 

"I  might  suggest  that  it  would  be  worth  while  to  include  in  your 
book  the  statement  that  purchasers  would  gain  by  establishing  their 
credit  with  the  principal  manufacturers,  well  ahead  of  the  time  when 
they  expect  to  buy,  in  order  to  prevent  misunderstandings  and  delays 
when  the  material  is  actually  needed.  This  is  a  point  which  is  often 
overlooked  by  purchasers  who  know  that  they  deserve  credit,  and 
assume  that  the  manufacturer  is  equally  familiar  with  their  condition, 
which,  of  course,  the  manufacturer  cannot  be  unless  steps  are  taken  well 
in  advance  to  get  these  matters  fully  arranged." 

46.  Tendency  to  restrict  terms. — The  terms  given  hereinbefore 
are  known  as  ''usual,"  and  a  considerable  variance  in  the  differ- 
ent lines  of  trade  is.  noticeable.  The  tendency  is  constantly 
toward  less  liberal  terms  as  the  manufacturers  are  beginning  to 
realize  to  what  high  rate  per  annum  even  a  small  cash  discount  is 
equivalent.  As  Mr.  M.  E.  Stone,  president  of  the  Tucker  Tool 
&  Machine  Company, expressed  it: 

"There  is  a  growing  tendency,  which  has  been  marked  in  the  last  two 
years,  to  discontinue  the  giving  of  2  per  cent,  cash  discount.  This 
cash  discount  is  larger  than  it  should  be,  and  is  a  "left  over"  from  the 
days  of  8  per  cent,  and  10  per  cent,  money.  During  the  past  j^ear  a 
great  many  factories  have  either  abolished  the  cash  discount  altogether 
or  reduced  it  to  1  per  cent.  I  doubt  if  within  two  years  there  will  be 
many  *2  per  cent.  10  days'  terms  left.  It  is  distinctly  a  waste  to  the 
factory,  because  it  is  never  figured  into  the  cost  of  production  or  selling 
price,  but  is  a  financial  matter.  With  the  strengthening  of  our  manu- 
facturing concerns,  the  pressing  need  of  money  for  payroll  purposes  has 
passed  away,  and  there  is  no  reason  why  they  should  pay  such  a  large 
premium  for  prompt  cash  when  they  can  borrow  all  the  money  they  want 
at  the  bank  at  }i  per  cent,  for  thirty  days." 

Nevertheless,  the  question  of  terms  will  always  remain  to  some 
extent  and  good  credit  will  always  have  some  advantage  over 
poor  credit.  A  skillful  purchaser  will  always  be  able  to  get 
something  better,  in  terms,  than  the  unskillful  purchaser. 

47.  Summary. — Consideration  of  the  foregoing  statements 
teaches  us  that  the  terms  are  of  the  very  greatest  importance  with 
the  house  that  is  financially  weak  or  with  the  house  that  operates 
on  other  people's  money,  whether  such  money  is  borrowed  from 
a  bank  or  from  those  from  whom  it  buys.     But  we  should  also 


50  PURCHASING 

note  that  cash  discounts  represent  a  very  large  rate  of  interest 
per  annum,  a  fact  to  which  the  seller  is  more  alive  than  the  aver- 
age buyer.  Hence  the  seller  is  gradually  becoming  less  liberal  in 
the  matter  of  terms.  This  statement  apphes  to  all  lines  of  trade. 
Therefore,  the  buyer  must  be  alive  to  secure  good  terms  in  every 
case,  or  he  will  find  them  disappearing  to  a  still  greater  degree. 

We  have  also  noted  that  favorable  terms  vary  directly  with  a 
buyer's  credit,  and  it  should  be  added,  inversely  with  a  seller's 
credit.  In  other  words,  the  better  the  buyer's  credit  is,  the 
better  terms  he  can  compel;  and  the  poorer  the  seller's  credit  is, 
the  better  will  be  the  terms  he  will  allow  in  order  to  get  cash. 
These  two  facts  instruct  the  buyer,  and,  together  with  the  facts 
brought  out  in  the  chapter  on  strategy,  form  the  basis  of  the 
rules  to  apply  in  obtaining  the  most  favorable  terms.  These 
rules  are: 

1.  If  the  buyer's  credit  is  good,  use  this  as  a  lever  for  a  large 
cash  discount  or  long  dating. 

2.  If  the  seller's  credit  is  poor,  insist  on  a  large  cash  discount. 

3.  Always  arrange  favorable  terms,  but  make  this  the  final 
concession  which  the  seller  must  make  to  get  the  order. 


CHAPTER  VI 
PERSONAL  CHARACTERISTICS  AND  QUALIFICATIONS 

48.  Other     desirable     qualifications     besides     knowledge. — 

Knowledge  is  not  the  only  qualification  that  a  purchaser  should 
possess.  To  enumerate  all  of  the  desirable  qualities  would  be  to 
name  all  of  the  virtues.  It  goes  without  saying  that  honesty, 
truthfulness,  industriousness  and  loyalty,  are  essential  to  success. 
In  fact,  it  is  not  the  lack  of  these  that  causes  one  buyer  to  be  less 
successful  than  another.  To  take  for  example,  honesty,  there  is 
no  doubt  that  the  percentage  is  very  high.     One  author  states 

^"Considering  the  many  temptations  for  speculation  or  graft  that  are 
offered  the  buyer  of  any  firm  of  importance,  the  ratio  of  dishonesty  is 
small  indeed.     Buyers  as  a  class  do  not  betray  the  trust  in  them  reposed. 
Another  says: 

=^"In  view  of  the  great  opportunity  for  disloyalty  and  'graft'  in  their 
calling,  the  purchasing  agents  of  the  country  present  a  striking  example 
of  the  general  loyalty  of  employees  to  their  employers  and  of  the  basic 
honesty  which  is  responsible  for  the  confidence  on  which  our  business 
system  is  built." 

There  are,  however,  several  characteristics  which  apply  with 
peculiar  force  and  these  will  now  be  taken  up  in  turn. 

49.  Broadmindedness. — The  buyer,  especially  the  professional 
purchasing  agent,  is  proverbially  narrow.  He  often  wonders  why 
he  does  not  advance  in  rank  and  pay  as  do  others  who  are  less 
fortified  by  knowledge,  industry  and  experience.  He  often 
wonders  why  the  executive  to  whom  he  reports  takes  many  large 
deals  out  of  his  hands,  feeling  he  could  trade  to  better  advantage 
himself.  The  answer  usually  is  that  the  purchasing  agent 
lacks  breadth.  Large  questions  come  up  all  about  him  yet  he 
cannot  see  beyond  his  own  doorstep. 

The  lack  of  breadth  in  most  purchasing  agents  brings  up  the 
question  as  to  whom  the  buying  should  be  intrusted.  Many 
large  establishments  employ  special  men  whose  sole  or  principal 

1  A.  W.  Shaw  Compan,y. 

2  Prof.  Ralph  Starr  Butler,  Alexander  Hamilton  Institute. 

51 


52  PURCHASING 

duty  is  to  do  the  purchasing.  Other  establishments  delegate 
the  buying  to  one  of  the  officers,  believing  the  supervision  of  this 
department  of  sufficient  importance  to  be  handled  by  one  whose 
chief  ability  is  of  an  executive  nature.  There  are  advantages  and 
disadvantages  to  either  system,  generally  speaking,  and  the 
nature  and  size  of  the  business  will  usually  determine  which 
method  to  employ. 

^  "The  modern  tendency  is  continually  to  broaden  the  scope  of  the 
buyer's  duties.  At  one  extreme  is  the  member  of  the  small  office  organi- 
zation to  whom  is  delegated  the  task  of  purchasing  the  office  supplies. 
At  the  other  extreme  is  the  buyer  for  the  large  factory  who  purchases 
raw  materials,  supervises  their  storage  and  distribution,  and  is  largely 
responsible  for  the  satisfactory  working  of  the  cost  accounting  system 
so  far  as  it  pertains  to  the  processes  of  production.  The  duties  of  the 
buyer  are  so  closely  related  to  those  of  other  employees  that  the  tendency 
is  more  and  more  to  give  him  a  direct  interest  in  all  the  work  that  is 
immediately  allied  to  purchasing." 

The  professional  purchasing  agent  will  often  be  able  to  secure 
a  better  price  than  will  one  whose  mind  is  devoted  in  a  large  part 
to  executive  duties,  inasmuch  as  the  professional  will  be  in  closer 
touch  with  the  details  of  his  department.  Like  all  specialists  he 
will  follow  the  trend  of  prices,  keep  in  touch  with  salesmen  and 
other  purchasing  agents  and  constantly  strive  to  perfect  himself 
in  all  things  which  tend  to  promote  his  skill  as  a  buyer.  But, 
like  any  other  specialist,  he  is  likely  to  become  narrow.  He  will 
often  sacrifice  quality  for  price.  He  is  likely  to  forget  the  im- 
portance of  broad  policy  and  seek  only  to  increase  the  reputation 
of  his  own  department.  Many  purchasing  agents  stand  in  their 
own  light  in  their  refusal  to  make  their  purchases  accord  with 
the  policy  of  their  employers,  belie\ang  that  the  business  is 
conducted  to  purchase  material,  rather  than  that  they  purchase 
material  as  a  necessary  though  secondary  adjunct  to  the  conduct 
of  the  business.  On  the  other  hand,  the  executive,  who  has  a 
broad  viewpoint  of  the  business,  who  knows  the  importance  of 
having  each  department  in  harmony  with  the  others  and  who 
knows  the  value  of  reputation  for  square  dealing  with  the  trade, 
will  see  the  value  of  price  in  its  true  proportion.  The  executive, 
being  under  less  obhgation  to  make  a  reputation  in  purchasing, 
may  pay  more  for  the  individual  article  but  all  things  considered, 
he  will  usually  save  his  company  money  in  the  course  of  time. 

1  Prof.  Ralph  Starr  Butler,  Alexander  Hamilton  Institute. 


PERSONAL    CHARACTERISTICS    AND    QUALIFICATIONS       53 

Most  salesmen  would  prefer  to  deal  with  the  executive  rather 
than  with  the  out-and-out  professional  purchasing  agent,  espe- 
cially if  they  have  goods  of  merit  to  offer.  They  realize  that  the 
executive  will  listen  more  readily  to  other  considerations  than 
price  and  that  they  will  receive  broader  treatment.  The  reverse 
is  just  as  true,  that  the  purchaser  would  prefer  to  deal  with  the 
executive  head  of  the  selling  company  when  special  service  is  re- 
quired, unusually  large  orders  are  to  be  placed  or  when  difficulties 
arise.  The  executives  on  either  side  of  the  transaction  are  ap- 
pealed to  with  the  result  that  matters  are  speedily  adjusted. 
Purchasing  agents  resent  having  their  superior  officers  go  over 
their  heads  more  than  salesmen  do.  The  latter  are  glad  to  avail 
themselves  of  almost  any  means  of  concluding  a  sale,  knowing 
that  they  will  receive  their  commission  or  at  least  the  credit. 
Purchasing  agents,  unlike  salesmen,  cannot  show  the  result  of  their 
efforts  by  the  volume  of  business  transacted  and  so  are  jealous 
of  any  interference  with  their  departments.  The  purchasing 
agent  often  has  himself  to  blame  in  these  cases  for,  if  he  were 
broader  gaged  in  his  deahngs,  there  would  be  less  occasion  to 
over-ride  him. 

50.  Tact. — Whoever  is  intrusted  with  the  purchasing  should  be 
tactful.  This  does  not  mean  that  he  should  be  a  "mollycoddle," 
nor  that  he  should  always  be  on  the  defensive.  As  we  shall  see 
later,  it  is  sometimes  necessary  to  display  anger — to  show  one's 
teeth.  But,  to  speak  generally,  the  homely  saying  that  ''You 
can  catch  more  flies  with  molasses  than  with  vinegar"  is 
appropriate. 

Tact  implies  a  knowledge  of  human  nature,  a  knowledge  of 
those  with  whom  one  deals.  It  implies  further  the  knack  of 
utilizing  this  knowledge  to  get  the  desired  action  with  as  little 
friction  as  possible.  It  implies  diplomacy — playing  through 
the  opponent's  weakness  rather  than  through  his  strength. 
Tact  is  to  be  used  by  the  purchaser  within  his  own  organization 
as  well  as  without. 

1  "Through  his  function  of  buying  supplies  for  all  parts  of  the  busi- 
ness— office  as  well  as  factory — the  purchasing  agent  is  brought  into 
contact  with  practically  all  of  the  important  employees. 

"If  he  has  the  power  of  vetoing  their  requisitions,  a  knowledge  of 
their  individual  characteristics  is  essential  to  guide  him  in  this  important 
duty.     If  a  careful,  conservative  department  sends  him  an  unusual 

'  Prof.  Ralph  Starr  Butler,  Alexander  Hamilton  Institute. 


54  PURCHASING 

requisition  for  new  and  expensive  supplies,  the  buyer  will  more  readily 
fill  the  requisition  than  he  would  if  it  came  from  a  man  who  was  continu- 
ally ordering  unnecessary  articles  and  attempting  to  install  expensive 
systems  without  any  preliminary  test  of  their  efficiency.  In  rejecting 
a  requisition  it  must  be  done  in  a  manner  calculated  to  produce  the  least 
friction  and  unpleasantness,  and  in  the  performance  of  this  delicate  task 
a  knowledge  of  the  men  with  whom  he  is  dealing  is  a  valuable  asset  for 
the  purchasing  agent." 

51.  Natural  aptitude. — As  in  selling,  so  also  in  purchasing, 
some  are  naturally  more  gifted  than  others,  but  even  the  amateur 
or  casual  buyer  can  buy  to  better  advantage  than  he  usually 
does  or  tries. 

^  "It  is  to  a  great  extent  a  matter  of  opinion  as  to  whether  what  is 
commonly  termed  'the  buying  instinct'  may  be  attained  or  whether 
it  is  inherent,  a  knack,  so  to  speak,  existing  in  the  person  himself.  This 
is  best  answered  by  the  fact  that  buyers  holding  the  most  responsible 
positions  throughout  the  country  are  there  because  they  have  used 
scientific  methods  in  purchasing.  They  have  not  relied  on  inherent 
knowledge,  but  on  that  which  is  acquired.  Different  degrees  of 
capability  naturally  exist  in  different  persons,  but  positions  of  impor- 
tance in  the  buying  world  have  not  been  attained  as  the  culmination 
of  a  period  of  hammering  down  prices  by  bidding  lower  than  the  one 
asked,  but  by  a  knowledge  of  values  judicioush'^  applied." 

Whoever  keeps  uppermost  in  mind  that  he  does  not  have  to 
take  the  first  article  offered,  pay  the  first  price  or  meet  the  first 
terms  named,  can  accomplish  much.  Add  to  this  plenty  of 
thought,  a  little  ingenuity  and  experience  and  the  trick  is  turned. 
Natural  aptitude  is  only  one,  although  a  desirable,  qualification. 

Aptitude  and  instinct  are  so  closely  related  that  the  following 
quotation  is  not  out  of  place: 

^"It  is  one  of  the  yet  unexplainable  things  of  life,  that  in  many  trades 
a  large  number  of  operations  are  governed  by  instinct. 

"For  instance,  there  are  few  credit  men  who  do  not  resort  to  instinct 
— intuition  might  be  considered  a  better  word — at  times  to  determine 
whether  to  extend  a  man  credit  or  not.  While  few  buyers  will  admit 
that  a  'hunch'  ever  governs  their  mental  operations,  yet  it  is  undeniably 
true  that  at  times  it  is  necessary  to  trust  to  intuition  as  to  whether  to 
make  a  purchase  or  not.  This  intuitional  faculty  is  generally  correct 
only  in  the  light  of  experience,  from  which  the  intuitional  faculties  can 
make  deductions  later  to  be  known  as  a  'hunch'." 

^A.  W.  Shaw  Company. 


PERSONAL    CHARACTERISTICS    AND    QUALIFICATIONS       55 

In  the  author's  judgment,  the  theory  which  has  been  advanced 
in  explanation  of  instinct  or  intuition  will  explain  why  a  buyer's 
"hunch"  so  often  works  out  satisfactorily.  For  that  matter, 
it  explains  the  basis  of  aptitude  as  well  and  why  those  who, 
after  years  of  effort  in  any  field,  emerge  successful,  are  then  said 
to  have  possessed  "natural  aptitude." 

Judgment  is  based  on  experience.  Action  is  based  on  judg- 
ment. It  may  be  our  judgment  that  it  is  advisable  to  take  a 
certain  action  because  in  the  light  of  our  experience  this,  that  and 
the  other  thing  has  happened,  or  will  happen.  We  can  put 
down  in  logical  order  our  reasons,  all  of  which  will  be  found  to 
be  based  on  experience.  If  the  reasons  appeal  to  us  and  are 
systematically  arranged,  we  say  it  sounds  "logical."  In  such 
a  case  we  acted  on  "reason"  and  not  on  "intuition."  We 
are  constantly,  however,  going  through  a  multitude  of  experi- 
ences every  day  of  our  lives.  All  of  these  experiences  our  brains 
record  but  some  are  not  stamped  deeply  enough  to  allow  them 
to  be  recalled  at  will.  Their  impressions  are  there  notwithstand- 
ing. Now  then  we  get  a  "hunch"  that  a  certain  other  action  is 
advisable.  We  cannot  put  down  in  logical  order  enough  reasons 
to  present  to  a  third  party  and  have  him,  who  has  had  other 
experiences,  say  the  action  looks  to  him  to  be  based  on  anything 
sound.  Neither  can  we  put  our  own  fingers  on  the  definite  ex- 
periences on  whi-ch  we  predicate  our  desire  to  act.  Yet  those 
experiences,  an  infinite  number  of  small  things  on  which  our 
judgment  is  based,  really  are  there,  and  our  desire  for  action  is 
based  on  our  judgment. 

If  experience  does  give  us  judgment  and  knowledge,  and  if 
we  can,  by  study,  appropriate  for  ourselves  other's  experiences, 
then  the  theory  does  not  hold  that  natural  aptitude  is  the  one 
essential  to  success. 

52.  The  buyer  and  the  salesman  compared. — It  is  a  curious 
fact  that  salesmen  as  a  class  are  of  the  care-free,  jovial,  prosperous 
type,  whereas  the  purchasing  agents  usually  look  worried,  are 
likely  to  be  skeptical  and  do  not  have  the  dress  and  air  of  the 
salesman.  The  reason  for  this  is  plain.  The  salesman  must 
appear  well  in  order  to  gain  audiences  with  those  who  hold  the 
purse  strings.  His  house,  realizing  that  "prosperity  begets 
orders,"  insists  that  its  representatives  appear  prosperous,  for 
it  is  only  through  the  salesman  that  many  buyers  know  the  house 
with  which  they  deal.     The  salesman  must  make  himself  agree- 


56  PURCHASING 

able  if  he  would  make  friends  with  the  buyer,  though  it  must  be 
admitted  that  many  salesmen  overdo  this.  In  short,  the 
salesman  has  evolved  through  the  efforts  of  selhng  establishments 
to  take  full  advantage  of  the  personal  equation.  The  purchasing 
agent,  on  the  other  hand,  usually  feels  that  he  is  more  inde- 
pendent, that  it  is  up  to  the  salesman  to  make  the  advances  and 
that  his  purchasing  power  rather  than  his  personal  attractive- 
ness are  what  appeals  to  the  seller.  Further,  the  average 
company  does  not  look  on  the  buying  end  of  its  business  as  being 
so  vital  as  the  selhng  department  and  therefore  salesmen  as  a 
class  are  better  paid  than  purchasing  agents.  However,  with 
the  advance  in  scientific  methods  of  merchandising,  the  differ- 
ence in  purchasing  agents  and  salesmen  is  being  leveled.  The 
modern  salesman  relies  more  and  more  on  logic  and  less  and  less 
on  ingratiating  manners.  The  ubiquitous  cigar  is  about  all 
that  is  left  of  the  wine  dinners  of  yesterday.  With  the  exception 
of  a  few  Hues  of  trade,  graft,  even  petty  graft,  has  almost  entirely 
disappeared.  In  this  respect,  the  United  States  stands  in  good 
relief  to  other  countries,  where  business  is  done  as  was  customary 
here  a  generation  ago.  The  contrast  with  South  America  in 
this  respect  is  particularly  striking. 

It  is  also  worthy  of  note  that  there  are  many  associations  and 
conventions  of  salesmen  from  which  they  derive  much  good. 
This  is  probably  due  to  the  fact  that  salesmen  are  outside  men, 
and  come  in  contact  with  each  other  constantly.  They  meet  in 
the  railway  trains,  in  the  outer  offices  of  the  buyers  and  in  the 
street.  It  is  but  natural  that  they  should  fraternize,  exchange 
views,  and  finally  associate  formally.  On  the  other  hand,  the 
purchasing  agent  spends  his  day  in  the  office  and  rarely  meets 
another  purchasing  agent.  He  has  not  realized  sufficiently  the 
good  that  such  intercourse  would  bring  him  else  he  would  find 
a  means  of  overcomhig  the  disadvantages  of  isolation. 

53.  Summary. — In  fisting  the  attributes  of  "the  perfect 
purchasing  agent"  we  note  that,  aside  from  knowledge,  the  same 
simple  virtues  are  desirable  in  this  as  in  any  other  profession. 
It  is  to  be  remembered,  though,  that  broad-mindedness  and 
tactfulness  are  the  qualities  most  lacking  and  yet  most  needful. 
Natural  aptitude  is  an  aid  rather  than  the  one  thing  to  be  con- 
sidered, and  aptitude  can  be  developed  by  experience  even  if 
not  possessed  naturally.  Finally,  the  purchaser  should  study  the 
salesman  as  thoroughly  as  the  salesman  studies  him. 


CHAPTER  VII 
STRATEGY 

54.  What    is    meant    by    strategy    and    its    importance. — In 

every  profession,  we  find  employed  a  certain  indefinable  thing 
which  might  be  called  cunning,  acumen,  acuteness  or  shrewdness, 
the  possession  of  which  is  necessary  in  meeting  the  problems 
presented.  The  use  of  these  qualities  can  best  be  termed  strategy. 
So  it  is  in  purchasing.  The  degree  in  which  this  quality  is 
possessed  may  very  well  distinguish  the  able  purchaser  from  the 
mediocre  one.  The  man  who  possesses  astuteness  is  often 
more  than  a  match  for  the  man  who  lacks  this  characteristic, 
however  complete  may  be  his  grasp  of  every  other  essential. 
Nothing  so  develops  one's  strategic  ability  as  matching  wits 
with  the  salesman  whose  stock  in  trade  often  consists  of  that  very 
trait.  Strategy  cannot  be  taught,  but  it  can  be  developed. 
To  those  who  are  artful,  this  chapter  will  be  of  benefit  in  pointing 
out  some  tactics  which  have  been  employed  as  well  as  in  suggest- 
ing others.  To  those  who  are  artless,  this  chapter  may  at  least 
disclose  the  means  whereby  they  have  been  confounded,  and 
show  them  the  need  for  their  development  in  this  direction. 

55.  Sharp  practice. — It  is  not  easy  to  draw  the  line  where 
strategy  of  a  commendable  character  leaves  off  and  sharp 
practice  begins.  Sharp  practice  technically  comes  under  the 
head  of  strategy  but,  neither  practically  nor  morally,  can  the 
former  be  commended.  Cases  may  arise  where  one  is  con- 
fronted by  sharp  practice  on  the  part  of  the  seller  and  where 
negotiations  have  reached  such  a  point  that  they  cannot  be 
broken  off,  thereby  leading  the  buyer  to  argue  with  himself 
that  he  must  resort  to  the  same  weapons  for  protection.  These 
cases  are  rare,  however,  and  the  buyer  will  do  well  to  avoid 
further  dealings  with  the  concern  which  employs  questionable 
means.  Sharp  practice  as  a  policy  does  not  pay.  It  destroys 
that  confidence  which  is  the  cornerstone  of  all  successful  and 
enduring  business. 

While  sharp  practice  cannot  be  commended  in  practice,  both 

57 


58  PURCHASING 

the  buyer  and  the  seller  must  recognize  its  existence  and  guard 
against  its  pitfalls.  Some  of  the  forms  in  which  such  pitfalls 
occur  have  been  added,  therefore,  for  the  sake  of  completeness, 
and  it  should  be  understood  that  they  do  not  carry  the  stamp 
of  the  author's  approval.  As  in  so  many  other  mattfers  with 
which  the  business  man  deals,  conscience  rather  than  rules  or 
law  must  be  the  guide. 

56.  Splitting  the  difference. — One  of  the  oldest  means  which 
people  have  adopted  to  reach  an  agreement  on  price,  terms 
or  what  not  is  to  "spht  the  difference."  Its  apphcation  is 
universal  for  the  reason  that  it  is  human  nature  not  to  wish  to 
be  considered  unfair.  When  Thomas  asks  $250  for  a  horse  and 
states  that  he  can  prove  that  he  paid  the  same  himself  a  short 
while  ago,  whereas  Richard  will  not  pay  more  than  $200 — simply 
cannot  afford  more — how  natural  for  Thomas  to  say:  "Well, 
I  want  to  do  the  square  thing  by  you!  I  am  really  losing 
money,  but  I  can  understand  your  position!  You  can  have  the 
beast  for  $225."  How  natural  for  Richard  to  say:  "Well,  if  I 
pay  your  price  I  will  have  to  do  with  my  last  year's  suit!  I 
really  shouldn't  do  it  but  I  will  meet  you  half  way."  This 
undoubtedly  was  the  fair  solution,  provided  Thomas  did  pay 
$250  a  short  while  ago,  and  provided  also  he  did  not  overpay  when 
he  did  so  and,  further,  if  Richard  really  would  have  to  go  without 
that  suit  if  he  paid  the  extra  $25.  The  chances  are,  however, 
that  Richard  did  not  believe  Thomas  any  more  than  Thomas 
believed  Richard.  But  the  chances  are  also  that  Richard  really 
wanted  that  horse  badly  enough  to  pay  $250  and  that  Thomas 
wanted  to  be  rid  of  him  badly  enough  to  accept  $200  flat.  So 
each  went  away  with  the  pleasant  feeling  that  he  had  secured 
$25  "velvet." 

People  usually  ask  more  than  they  expect  to  receive  and 
usually  offer  less  than  they  expect  to  pay.  Therefore,  it  is 
generally  better  to  let  the  other  person  name  the  first  figure. 
For  example,  if  Richard  expected  to  pay  $250,  it  would  have  been 
a  mistake  for  him  to  open  negotiations  by  saying:  "I'll  give  $225 
for  that  horse."  The  chances  are  that  Thomas  would  then 
have  asked  $275,  and  Richard  would  have  ended  by  paying 
$250.  Even  supposing  Thomas  to  have  asked  $250  as  in  the 
first  case,  it  is  hkely  that  the  matter  would  then  have  been  split 
at  $240  and  Richard  would  have  paid  more  than  he  did  in  the 
first  hypothesis  by  letting  Thomas  lead  off. 


STRATEGY  59 

To  know  approximately  what  is  in  the  other  man's  mind,  by 
letting  him  speak  first  is,  in  ninety-nine  cases  out  of  one  hundred, 
to  have  the  advantage.  This  advantage  is  usually  with  the 
purchaser  who  asks  the  price.  The  seller  then  not  only  is 
ignorant  of  what  the  buyer  is  willing  to  pay,  but  he  also  does  not 
know  what  proposition  another  seller  has  made. 

1  "The  business  world,  particularly  the  buying  world,  is  full  of 
finesse.  It  is  always  good  business  to  keep  hidden  at  times  the  very 
thing  that  the  other  man  wants  to  know." 

It  might  be  argued  that  it  would  always  be  the  best  pohcy  to 
offer  a  very  much  lower  price  than  one  is  really  willing  to  pay. 
This  is  not  true.  To  offer  an  absurdly  small  amount  is  to  betray 
and  make  too  apparent  the  fact  that  one  is  only  "fishing." 
It  may  have  the  effect  of  causing  the  seller  to  refuse  to  come 
down  at  all,  since  he  feels  that  the  buyer  is  not  in  earnest  or  that 
he  is  not  a  keen  trader  and  that  he  eventually  will  come  to  the 
high  figure.  The  buyer  who  offers  a  ridiculously  low  price  shows 
too  plainly  that  he  is  not  plajdng  square  whereas  the  whole  basis 
of  splitting  prices  is  "to  be  fair"  or  to  "appear  fair."  Again,  it 
is  fooUsh  to  offer  a  price  that  is  entirely  below  the  bounds  which 
the  other  can  meet  and  not  lose  money.  The  same  idea  has  been 
expressed  by  Mr.  M.  J.  Chfford  in  the  Business  Man's  Library, 
thus: 

"One  class  of  close  buyers  uses  the  following  method:  A  certain 
line  of  goods  is  offered,  for  instance,  at  27 J^  cts.  per  yard,  the  market 
being  firm  as  regards  that  particular  line.  This  buyer  regards  price 
merely  as  something  to  be  lowered — a  challenge  as  it  were — and  in 
conformity  to  his  established  practice  of  buying,  offers  less.  This  price 
may  be  very  considerable,  but  in  the  case  mentioned  would  probably 
be  from  ^i  ct.  to  1}^^  cts.  below  the  price  asked.  These  tactics  may 
or  may  not  win,  for  if  the  salesman  knows  he  is  in  contact  with  a 
close  buyer  he  has  raised  his  price  accordingly  to  suit  his  man.  On 
the  other  hand,  should  the  price  be  a  bottom  one,  the  buyer  has  simply 
tried  to  call  a  bluff  that  did  not  exist.  The  probabilities,  however,  are 
generally  against  the  buyer.     He  will  lose  more  times  than  he  will  win." 

^"The  'offer  system,'  as  this  method  has  been  designated,  hardly  en- 
titles the  buyer  to  the  designation  'close'  or  'shrewd.'  Not  only  is  it 
unscientific,  but  one  who  habitually  beats  down  the  price  offered  him 

^  A..  W.  Shaw  Company. 


60  PURCHASING 

is  liable  to  acquire  a  reputation  for  so  doing  and  is  always  met  by  a  price 
that  may  be  scaled  down  to  meet  his  requirements." 

Sometimes  the  difference  is  split  twice.  When  Thomas  made 
the  "generous"  offer  of  $225,  Richard,  if  he  had  been  a  better 
trader,  would  have  said:  "I  appreciate  your  offer.  I  know  I  am 
missing  a  bargain,  but  I  simply  cannot  meet  my  rent  and  pay 
that  much.  I  hope,  Thomas,  that  you  will  not  be  offended  by 
my  not  accepting,  but  there  is  no  good  of  my  teUing  you  I  will 
take  the  animal  when  I  haven't  the  money.  I  could  scrape 
together  $200;  might  even  at  a  pinch  sell  one  of  my  hogs  and 
raise  $210,  but  $225 — I  simply  can't  do  it!"  Who  doubts  what 
Thomas  would  have  said? 

Had  Richard  really  known  that  Thomas  was  anxious  to  sell 
that  horse,  Richard  would  have  made  the  first  offer  $200.  We 
already  know  Thomas'  reply.  Richard  would  have  then  said, 
"Couldn't  think  of  it.  Not  for  a  moment;  and  remember,  when 
I  say  $200,  I  am  offering  more  than  I  would  ordinarily  pay. 
I  thought  I  could  get  your  horse  at  once.  Now  I  must  go  to 
town  in  the  morning  to  buy  one.  Think  it  over  to-night  and  let 
me  know  if  you  change  your  mind"- — ^this  as  he  turns  on  his  heel 
and  walks  away.  Very  likely,  Thomas  would  have  accepted 
by  telephone  that  very  night.  Thus  we  see  that  Richard,  on  an 
equal  footing  with  Thomas,  paid  $225;  Richard,  as  the  superior 
trader,  paid  $210,  and  Richard,  possessed  of  a  knowledge  that 
Thomas  was  anxious  to  sell,  paid  $200. 

57.  Utilizing  the  emotions. — All  of  the  emotions  may  be 
called  into  play  in  bargaining  for  price.  One  of  these  is  shame. 
Thus,  when  Richard  offered  to  spUt  the  difference  with  Thomas 
between  the  $225  and  $200,  Thomas  might  have  said:  "I  am 
astonished  that  you  would  wrangle  over  a  matter  of  $15.  Here 
I  am,  offering  to  throw  off  $25  for  the  sake  of  our  friendship  and 
to  help  you  out,  and  you  try  to  squeeze  $15  out  of  me.  What 
would  your  other  friends  think  if  I  were  to  tell  them  what  close 
fists  you  have?"  Very  few  men  will  allow  themselves  to  appear 
small  when  the  matter  is  put  to  them  in  that  light. 

A  second  emotion  often  used  to  good  advantage  is  anger. 
Most  buyers  and  sellers  like  to  push  the  transaction  as  far  in 
their  own  favor  as  they  can.  A  display  of  impatient  anger  is 
often  a  signal  to  the  other  party  that  the  Hmit  has  been  reached. 
If  the  seller  is  really  anxious  to  book  an  order  and  is  simply 
nibbling  for  more  money,  he  will  often  stop  these  tactics  for 


STRATEGY  61 

fear  of  throwing  the  whole  matter  open  should  the  buyer  "get 
his  back  up."  A  case  of  this  kind  occurred  when  a  buyer,  who 
had  received  bids  for  a  lot  of  granite,  decided  to  give  it  to  a 
certain  firm  that  was  already,  by  the  way,  a  low  bidder.  Its 
figure  came  to  about  $20,000,  and  the  buyer  estimated  in  his 
own  mind  that  there  must  be  a  profit  of  about  $3,000  in  the  job. 
It  so  happened  that  an  additional  quantity  of  the  same  material 
was  to  be  ordered  soon  after  and  that  whoever  obtained  the  first 
order  would  in  all  likelihood  stand  the  best  chance  of  securing 
the  subsequent  orders,  because  granite  of  the  same  appearance 
and  from  the  same  quarry  would  be  preferable.  Hence,  the 
buyer  telegraphed  the  low  bidder  that  he  could  have  the  order 
for  $18,000  estimating  that  a  profit  of  $1,000  would  be  left  for 
the  seller.  The  seller  wired  back  that  $18,000  could  not  be 
considered  and  that  $19,000  was  rock  bottom.  The  buyer 
replied  that  he  was' sorry  but  $18,000  was  the  best  he  could  offer 
and  that  he  would  have  to  place  the  order  elsewhere.  Then  the 
seller  called  up  on  the  long  distance  telephone  and  asked  to 
have  the  matter  held  open  two  days.  The  buyer  granted  but 
one  day.  At  the  end  of  this  day,  the  seller  wired  that  if  the 
matter  could  be  held  open  one  more  day,  he  would  call  in  person 
and  offer  something  "good."  Of  course,  the  buyer  agreed. 
When  the  seller  arrived,  he  said  that  his  president  had  authorized 
him  to  close  at  $18,750.  This  was  the  buyer's  cue.  He  first 
looked  incredulous,  then  injured,  then  mad.  He  paced  up  and 
down  a  few  moments  and  then  turned  on  the  seller.  "I  am 
surprised,  sir,  that  you  would  take  up  my  time  or  that  you  would 
waste  your  own,  coming  to  me  with  any  such  figure.  I  told  you 
distinctly  that  $18,000  was  my  top  figure.  Here  you  have  been 
imposing  on  me,  asking  me  to  hold  this  matter  open  for  some 
days  under  the  impression  that  you  would  be  able  to  meet  me. 
All  the  time  you  have  known  the  importance  of  getting  this 
material  under  way  and  yet,  after  going  out  of  my  way  to 
accommodate  you,  you  come  to  me  with  an  offer  that  is  prac- 
tically no  better  than  the  one  you  had  already  submitted.  You 
say  your  president  authorized  you  to  take  $18,750.  I  think 
you  are  right  and  I  believe  further  that  he  told  you  to  take 
$18,000  if  you  couldn't  get  more.  Isn't  that  right?"  It  was, 
and  the  salesman  admitted  it  and  took  the  order. 

It  might  be  argued  that  the  salesman  got  the  best  of  the 
bargain  after  all,  inasmuch  as  he  would  be  in  a  position  to  name 


62  PURCHASING 

his  own  price  on  the  subsequent  orders.  This  is  not  true  for 
two  reasons:  First,  the  salesman  would  have  had  the  "inside 
track"  on  the  subsequent  orders  regardless  of  the  price  he  got 
on  the  first;  second,  the  buyer  would  most  hkely  be  able  to  use 
the  price  of  the  first  order  as  a  basis  of  beginning  negotiations 
on  the  later  orders,  ultimately  paying  the  same  and  perhaps  less. 

Pride  and  apger  are  not  the  only  human  weaknesses  that  can 
be  called  to  the  assistance  of  the  buyer.  All  of  the  foibles  and 
faiHngs  can  be  worked  on.  The  seller  knows  this,  and  the  buyer 
must  remember  that  he  is  often  subjected  to  attack  with  these 
weapons.  The  capable  buyer  will  endeavor  to  locate  and  utilize 
to  his  own  account  the  weakness  of  the  seller,  while  knowing  and 
guarding  against  yielding  to  his  own. 

58.  Including  extras. — ^ After  a  transaction  has  come  to  a  point 
where  the  parties  are  agreed  as  to  price,  the  buyer  can  often  go 
still  further,  but  in  the  opposite  direction.  In  other  words,  in- 
stead of  getting  a  still  further  reduction  in  price,  he  can  get  more 
for  the  same  money.  This  is  sometimes  done  by  leaving  out  of 
the  data  on  which  the  bidders  prepare  their  figures,  some  more 
or  less  important  item  which  apparently  does  not  change  the 
character  of  the  article.  To  illustrate,  having  forced  down  the 
price  on  a  lot  of  steel  work  to  the  lowest  price,  the  buyer  would 
say:  "Well,  I  will  meet  your  revised  figure  on  one  consideration. 
I  find  we  will  require  two  coats  of  double  X  paint  on  this  struc- 
ture. If  you  will  agree  to  include  this,  we  will  call  the  affair 
settled."  At  this  point  in  the  negotiations  a  few  barrels  of 
paint  will  not  look  as  large  to  the  seller,  as  the  equivalent 
dollars. 

Another  way  to  accomplish  the  same  thing,  which  while  legal 
is  undoubtedly  rather  sharp,  is  to  include  "sleepers."  A 
"sleeper"  is  an  important  requirement  so  placed  in  the  specifica- 
tions as  to  be  unnoticed  by  the  bidder.  Specifications  are  often 
voluminous,  and  while  it  is  the  duty  of  the  bidder  to  acquaint 
himself  with  them  fully,  it  is  often  physically  impossible  for  him 
to  do  so.  The  wording  can  be  so  arranged  as  virtuallj'^  to  hide 
important  details.  A  synopsis  of  the  specifications  put  on  their 
face  may  lead  the  bidder  to  assume  that  the  synopsis  covers 
everything.  He  may,  therefore,  neglect  to  read  the  full  require- 
ments although  these  are  given  to  him.  While  the  inclusion  of 
sleepers  is  resorted  to  occasionally,  such  practice  will  not  pay  in 
the  long  run. 


STRATEGY  63 

59.  Quick  closing. — One  of  the  most  effective  means  at  the 
disposal  of  the  buyer  is  that  of  quick  closing.  An  offer  of  say- 
Si, 000  "if  accepted  instanter/'  has  a  powerful  effect  on  the  seller, 
especially  if  it  is  coupled  with  the  statement  that  "if  not  accepted 
we  will  take  bids  all  around  the  hne  and  to-morrow  our  best  offer 
will  be  $900."  If  a  buyer  knows  what  a  thing  is  worth  and  can 
come  out  flatfooted  with  an  offer  subject  to  immediate  accept- 
ance, and  also  tell  the  seller  that  the  offer  is  made  to  him  alone 
and  that  if  he  does  not  wish  the  order,  the  doors  of  competition 
will  be  opened,  the  chances  are  the  seller  will  try  to  keep  the 
doors  shut.  The  seller  can  be  impressed  with  the  fact  that 
since  time  is  important,  the  price  offered  is  unusually  attractive 
and  that  he  has  been  singled  out  for  the  order  due  to  his  singular 
ability  to  do  quick  work,  etc.  Everyone  likes  to  feel  that  he  is 
"on  the  inside"  and  he  hates  to  see  anyone  else  get  inside  with 
him.     Here  pride  gets  in  its  work. 

The  whole  theory  of  this  method  is  to  know  one's  ground  and 
then  rush  the  seller  off  his  feet. 

60.  Unbalanced  orders. — One  of  the  methods  sometimes  tried 
by  salesmen  to  secure  an  order  is  to  submit  an  unbalanced  bid. 
We  will  say  that  a  number  of  items  are  to  be  figured  on  at  unit 
prices  and  that  the  quantities  of  each  article  vary  considerably, 
there  being  a  large  number  of  items  of  which  a  small  quantity  is 
required  and  a  few  items  of  which  a  large  quantity  is  required. 
If  the  salesman  submits  very  low  figures,  perhaps  less  than  cost 
on  those  items  of  which  a  small  quantity  is  required,  and  high 
figures  on  the  few  items  of  which  large  quantities  are  required, 
his  proposition  will  look  very  attractive.  Yet,  when  the  lump 
sum  for  the  whole  order  is  computed,  the  proposition  may  not 
be  as  favorable  as  it  seems  on  its  face.  This  is  a  favorite  method 
among  contractors  and  is  sometimes  used  in  bidding  on  con- 
struction work.  For  example,  we  will  say  the  following  items 
are  sent  out  for  figures: 

Item     1  1,000  cu.  yd.  dry  excavation. 

2  2,000  cu.  yd.  wet  excavation. 

3  500  cu.  yd.  rock  excavation. 

4  100  tons  reinforcement. 

5  10,000  ft.  B.M.  timber. 

6  5,000  cu.  yd.  concrete. 

7  5,000  cu.  yd.  pneumatic  work  (under  compressed 

air). 


64  PURCHASING 

Suppose  two  bids  are  received  as  follows  from  A  and  B: 


A 

B 

A 

B 

Item 

Unit  bid 

Unit  bid 

Extended 

Extended 

1 

$0.75 

0.70 

750.00 

700 . 00 

2 

2.00 

1.75 

4,000.00 

3,500.00 

3 

4.00 

3.50 

2,000.00 

1,750.00 

4 

60.00 

60.00 

6,000.00 

6,000.00 

5 

30.00 

29.00 

300.00 

290.00 

6 

6.50 

6.25 

32,500.00 

31,250.00 

7 

30.00 

30.50 

150,000.00 

152,500.00 

Total 

$195,550.00 

$195,990.00 

I 

It  will  be  seen  that  B  is  lowest  on  five  items  out  of  seven  and 
is  equal  to  A  in  one  item  so  that  A  is  low  on  only  one  item  out 
of  seven.  If  the  buyer  does  not  take  the  trouble  to  calculate 
the  total  he  may  believe  that  B  has  the  more  favorable  propo- 
sition, whereas  A's  is  more  favorable  in  reality.  Since  there 
would  be  little  chance  that  the  buyer  would  not  extend  his  figures, 
unbalanced  bids  are  usually  presented  in  such  form  that  not 
only  the  unit  prices  will  appear  lowest,  but  the  totals  also. 
In  such  cases,  the  one  who  puts  in  the  unbalanced  bid  will  have 
or  think  he  has  information  regarding  the  quantities,  not 
possessed  by  his  competitors.  Thus,  suppose  B  was  positive 
that  before  the  work  was  finished,  item  7  would  be  doubled  and 
that  item  6  would  be  eliminated  entirely.  The  figures  might 
then  come  in  as  follows: 


Name 

Quantity 

Unit    bid 

Extended  bid 

A 

B 

A 

B 

1 

2 
3 
4 
5 

Dry  excavation.... 
Wet  excavation.. . 
Rock  excavation . 

Reinforcing 

Timber 

1,000  yd. 
2,000  yd. 
5,000  yd. 

100  tons 
10,000  ft. 
5,000  yd. 
5,000  yd. 

0.75 

2.00 

4.00 

60.00 

30.00 

6.50 

30.00 

0.72 

1.90 

3.50 

55.00 

28.00 

4.90 

31.00 

750 

4,000 

2,000 

6,000 

300 

32,500 

150,000 

720 
3,800 
1,750 
5,500 

280 

6 

7 

Concrete 

Pneumatic 

24,500 
155,000 

$195,550 

$191,550 

STRATEGY 


65 


In  this  case,  B  would  stand  a  very  good  chance  of  securing 
the  order  as  the  figures  look  more  attractive  than  those  submitted 
by  A,  but  if  B  is  correct  in  assuming  that  he  would  not  be  asked 
to  do  item  6  and  that  item  7  would  be  doubled,  the  comparison 
would  then  be: 


Name 

Quantity 

Unit  bid 

Extended   bid 

A 

B 

A 

B 

1 

2 
3 
4 
5 
6 

Dry  excavation.... 
Wet  excavation.. . 
Rock  excavation. 

Reinforcing 

Timber 

Concrete 

1,000  yd. 
2,000  yd. 
500  yd. 
100  tons 
10,000  ft. 

0.75 

3.00 

4.00 

60.00 

30.00 

6.50 

30.00 

0.72 

1.90 

3.50 

55.00 

28.00 

4.90 

31.00 

750 
4,000 
2,000 
6,000 

300 

720 

3,800 

1,750 

5,500 

280 

7 

Pneumatic 

10,000  yd. 

300,000 

310,000 

Total 

$313,055 

$322,050 

i 

Like  all  games,  this  is  one  that  both  parties  can  play.  The 
buyer  may  lead  one  of  the  bidders  to  believe  that  the  quantities 
may  be  changed  in  his  favor  whereas  they  may  in  reality  be 
changed  in  such  a  way  that  the  items  in  which  there  is  little  or 
no  profit  are  largely  increased  and  the  items  in  which  there  is  a 
fair  profit  are  substantially  diminished.  Of  course,  this  is 
double  dealing,  whether  it  is  indulged  in  by  the  buyer  or  the  seller. 

61.  Blanket  orders  in  their  relation  to  shifting  prices.^ — One 
of  the  fairest  forms  of  the  blanket  order,  fairest  to  both  buyer  and 
seller,  is  that  which  covers  the  buyer's  entire  requirements  for  a 
stated  period  at  prices  dependent  on  the  market  price  when  the 
goods  are  requisitioned,  but  varying  also  as  to  quantity. 

Thus  the  A. B.C.  Company  contracts  to  buy  all  of  its  rein- 
forcing bars  from  the  X.Y.Z.  Company  during  the  year  191-. 
The  X.Y.Z.  Company  agrees  to  ship  in  —  days  after  the  receipt 
of  any  requisition,  so  to  do,  from  the  A. B.C.  X.Y.Z.  further 
agrees  to  bill  A. B.C.  as  per  the  following  schedule  of  prices: 


First  100  tons  requisitioned. 
Second  100  tons  requisitioned. 
Third  100  tons  requisitioned, 
Fourth  100  tons  requisitioned. 
All  over  400  tons  requisitioned, 


market  price  at  date  of  requisition 

1  per  cent,  off  market. 

2  per  cent,  off  market. 
5  per  cent,  off  market. 
5  per  cent,  off  market. 


6t)  PURCHASING 

The  prices  quoted  in  Iron  Age,  F.O.B.  Pittsburg,  will  be  used 
in  rendering  invoices.  All  freight  shall  be  paid  by  A. B.C.  Com- 
pany. All  invoices  shall  be  2  per  cent,  ten  days,  thirty  days 
net.     Such  other  terms  as  fit  the  specific  case." 

Some  sellers  are  willing  to  take  the  gamble  on  the  market, 
especially  if  they  are  able  to  stock  the  material.  They  figure 
to  cover  the  order  at  a  favorable  price  and  to  hold  for  requisition 
by  the  buyer.  This  form  is  more  favorable  to  the  buyer  and 
would  contain  the  following  essentials: 

"The  A.B.C.  Company  contracts  to  buy  all  of  its  requirements  in  rein- 
forcing bars  of  the  X.Y.Z.  Company  during  the  year  ending ,  191-. 

The  X.Y.Z.  Company  agrees  to  make  shipment  within  —  days  after  receipt 
of  requisition  of,  so  to  do,  from  the  buyer,  and  the  X.Y.Z.  Company 
further  agrees  to  invoice  all  bars  at  $1.40  base,  F.O.B.  Pittsburg, 
freight  to  be  paid  by  buyer.  X.Y.Z.  Company  further  agrees  that,  the 
above-mentioned  price  being  the  market  quotation  on  the  date  of  the 
acceptance  of  this  order,  it  will,  in  the  event  that  the  market  price  drops 
below  $1.40  during  the  life  of  this  contract,  give  the  buyer  the  benefit  of 
any  such  drop  in  the  market.  On  the  other  hand,  the  X.Y.Z.  Company 
in  consideration  of  |1,  the  receipt  of  which  is  hereby  acknowledged, 
and  on  account  of  other  valuable  considerations  agrees  that  in  the  event 
of  the  market  price  being  more  than  $1.40  base,  F.O.B.  Pittsburg,  during 
the  life  of  this  contract,  it  will  not  charge  the  buyer  more  than  the  above- 
mentioned  price.  The  invoices  shall  be  at  2  per  cent,  ten  days,  thirty 
days  net,  etc.,  etc." 

Another  variation  of  the  foregoing  order  would  be  that  wherein 
a  flat  price,  regardless  of  the  market  price  but  varying  with  the 
quantity  requisitioned  would  be  stated,  as  follows: 

"The  A.B.C.  Company  agrees  to  buy  all  of  its  requirements  of  rein- 
forcing bars  from  the  X.Y.Z.  Company  and  the  X.Y.Z.  Company  agrees 

to  sell  reinforcing  bars  to  the  A.B.C.  Company  for  a  term  of 

months  from  date,  at  the  following  prices: 

First       100  tons  (2,000  lb.  per  ton)  $1.50  per  100  lb.  F.O.B.  Pittsburg. 

Second   100  tons  (2,000  lb.  per  ton)  $1.45  per  100  lb.  F.O.B.  Pittsburg. 

Third     100  tons  (2,000  lb.  per  ton)  $1.40  per  100  lb.  F.O.B.  Pittsburg. 

Fourth   100  tons  (2,000  lb.  per  ton)  $1.35  per  100  lb.  F.O.B.  Pittsburg. 

All  over  400  $1.35  per  100  lb.  F.O.B.  Pittsburg. 

Other  terms  to  suit  the  specific  case." 

In  some  lines  and  under  some  circumstances,  the  seller  is  un- 
willing to  take  a  blanket  order  "for  the  entire  requirements" 


STRATEGY  67 

of  the  buyer  without  some  guarantee  as  to  what  these  require- 
ments will  be.  An  order  of  this  kind  would  contain  such  pro- 
visions as  the  following: 

"The  A.B.C.  Company  hereby  agrees  to  buy  from  the  X.Y.Z.  Company 
and  the  X.Y.Z.  Company  agrees  to  sell  to  the  A.B.C.  Company  the  entire 
requirements  of  the  A.B.C.  Company  in  reinforcing  bars  during  the 

year  ending  ,  191-,  except  as  follows.     The  A.B.C.  Company 

agrees  that  it  will  requisition  under  this  order  not  less  than  300  tons 
(2,000  lb.  per  ton)  and  that  it  will  not  requisition  more  than  1,000 
tons  during  the  period  above  mentioned.  The  X.Y.Z.  Company  agrees 
that  it  will  invoice  the  above-mentioned  bars  as  per  the  following 
schedule  of  prices  and  terms: 

First      100  tons  $1.50  per  100  lb.  F.O.B.  Pittsl)urg. 

Second  100  tons  $1.45  per  100  lb.  F.O.B.  Pittsburg, 

etc.,  etc." 

Blanket  orders,  if  properly  accepted  by  the  seller,  become 
contracts  which  are  just  as  binding  as  orders  for  specific  things  at 
specific  times  of  delivery.  Much  care  must  be  taken  in  the  draw- 
ing of  these  agreements  to  see  that  the  intent  of  both  parties  is 
clearly  stated  and  the  instrument  properly  executed.  Many 
blanket  orders  are  repudiated  by  either  the  buyer  or  seller  when 
not  properly  drawn.  The  temptation  for  the  seller  to  repudiate 
an  order  of  this  sort  comes  when  the  market  so  changes  as  to 
wipe  out  his  profit.  The  temptation  comes  to  the  buyer  when 
the  market  drops  so  that  he  could  do  better  with  another  seller 
or  where  his  anticipated  requirements  do  not  materialize.  The 
chapter  on  the  legal  aspect  of  buying  (Chapter  VIII)  will  be  of 
service  in  properly  drawing  and  accepting  a  blanket  order. 

A  great  deal  of  strategy  may  be  shown  in  placing  blanket 
orders.  Here,  particularly,  knowledge  of  market  prices  is  very 
valuable.  Many  purchasers  with  a  keen  judgment  on  the  tend- 
ency of  prices  can  place  advantageous  blanket  orders  at  times 
when  the  market  is  "off."  They  can  display  the  same  good 
judgment  by  not  placing  blanket  orders  when  the  market  is  high 
unless  provision  for  a  drop  is  contained  in  the  agreement. 

62.  Evading  the  dealer's  protection. — In  many  lines  of 
manufacture,  the  manufacturer  elects  to  market  his  goods 
through  a  middleman,  called  by  such  names  as  dealer,  jobber, 
agent  or  merchant.  As  an  inducement  for  the  middleman  to 
handle  and  push  the  sale  of  his  goods,  the  manufacturer  usually 


68  PURCHASING 

agrees  to  sell  to  him  on  a  lower  scale  of  prices  than  to  the  con- 
sumer; to  wit,  he  agrees  to  "protect  the  dealer."  All  manu- 
facturers do  not  market  their  goods  in  this  way  but  when  they 
lack  sufficient  resources  to  establish  their  own  offices  or  stores 
in  all  important  localities,  this  method  is  often  of  advantage 
to  them  in  widening  their  sales  area. 

The  protection  afforded  to  dealers  has  been  abused  in  many 
specific  instances  by  manufacturer,  dealer  and  consumer  alike. 
The  manufacturer  will  often  sell  to  the  consumer  at  as  low  a 
price  as  he  has  agreed  to  sell  to  the  dealer  even  though  this  be 
counter  to  his  arrangement  with  the  dealer.  This  has  fre- 
quently resulted  in  an  attempt  by  the  consumer  to  deal  with  the 
manufacturer  direct  in  order  to  avoid  paying  the  dealer's  profit. 
Consumers  have  even  represented  themselves  as  dealers  and  have 
asked  for  prices  from  the  manufacturer  "for  resale,"  hoping  to 
get  the  "inside  price."  It  sometimes  occurs  then  that  the 
manufacturer,  meaning  to  be  honest  with  the  dealer,  will  quote 
to  the  consumer  what  purports  to  be  a  "resale"  price  but  what 
is  in  reality  the  regular  consumer's  price.  In  this  event,  if  the 
order  is  booked,  the  dealer  will  receive  his  commission  just  as 
though  he  had  made  the  sale.  The  more  usual  way  is  for  the 
manufacturer  to  refer  the  inquiry  to  the  dealer.  It  need  hardly 
be  added  that  the  manufacturer  who  knowingly  breaks  his 
agreement  and  quotes  a  dealer's  price  to  a  consumer,  no  less  than 
the  consumer  who  represents  himself  to  be  a  dealer  in  order  to 
get  a  special  price,  is  guilty  of  deceit.  Yet  the  prevalence  of 
this  form  of  hypocrisy  is  greater  than  is  generally  known.  The 
only  extenuating  circumstances  that  can  possibly  be  urged  are, 
the  great  tendency  in  all  lines  toward  direct  dealings,  which 
tendency  is  economic  and  stronger  than  contracts,  and  the 
resulting  keen  competition  between  manufacturers. 

In  many  cases  the  dealer,  in  his  anxiety  to  book  an  order,  will 
quote  to  the  consumer  a  lower  price  than  his  agreement  with  the 
manufacturer  permits;  briefly,  he  cuts  the  price.  Legally,  as 
determined  by  recent  court  decisions,  the  manufacturer  probably 
cannot  enforce  on  the  dealer  a  fixed  selling  price  to  the  consumer. 
The  dealer,  having  bought  and  paid  for  the  goods,  has  complete 
title  in  them  and  can  dispose  of  them  for  what  he  wishes. 
However,  no  one  would  highly  regard  a  merchant  who  had  broken 
a  pledge  to  his  principal,  even  though  he  remained  within  the 
law. 


STRATEGY  69 

63.  Summary. — The  strategist  is  a  student  of  human  nature. 
The  application  of  strategy  in  buying,  as  well  as  in  selling, 
involves  a  knowledge  of  human  nature  and  the  ability  to  portray. 
The  buyer  must  study  the  man  with  whom  he  deals,  seek  out 
his  weaknesses,  discern  what  is  in  his  mind,  learn  the  policies  of 
the  house  he  represents  and  act  or  portray  his  own  part  ac- 
cordingly. One  man  can  be  flattered;  another  can  be  bullied. 
One  man  can  be  won  by  an  appeal  to  his  sense  of  fairness; 
whereas  another  who  is  always  looking  for  an  opportunity  to  get 
the  better  of  the  buyer  can  be  made  to  think  he  is  succeeding  and 
so  can  be  made  to  fall  into  his  own  trap.  It  is  no  less  essential 
to  know  the  failings  of  the  seller  than  it  is  to  conceal  one's  own 
desires,  weaknesses  and  thoughts. 


CHAPTER  VIII 

SOME  OF  THE  LEGAL  ASPECTS  OF  PURCHASING 

By  William  W.  Taylor 

64.  Object  of  this  chapter. — In  considering  the  legal  phase  of 
the  art  of  purchasing,  all  that  is  intended  is  a  simple  and  brief 
discussion  of  some  of  the  elementary  legal  principles  involved  in 
arranging  for  a  purchase  of  goods.  These  principles  will  be 
treated,  so  far  as  they  are  susceptible  of  being  so  treated,  from  a 
practical  business  viewpoint,  so  that  the  layman  buyer  may 
appreciate  the  importance  of  orderly  procedure  and  of  the 
exercise  of  intelligent  care  in  effectively  ari'anging  for  his  con- 
tracts and  for  facilitating  the  conduct  of  his  business.  Careful 
adherence  to  a  few  simple  rules  by  the  intelligent  buyer  in  making 
his  contracts  will  render  much  less  probable  unnecessary  and 
expensive  lawsuits.  This  chapter  therefore  will  not  attempt  to 
deal  with  the  various  legal  refinements  and  theories  of  the  law  of 
buying  and  selling  personal  property  which  have  been  evolved 
in  all  kinds  of  litigated  situations  during  the  course  of  many 
years  and  in  many  jurisdictions.  Nor  will  the  chapter  discuss  the 
legal  remedies  of  the  purchaser  in  the  event  of  misunderstandings 
and  disputes  with  the  seller,  as  these  are  matters  peculiarly  within 
the  domain  of  the  lawyer.  What  is  of  primary  interest  and 
concern  to  the  buyer  is  an  observance  of  the  essential  rules  with 
respect  to  the  formation  of  the  contract  to  purchase  so  that  the 
terms  thereof  may  be  clear,  exact  and  comprehensive  and  so 
that  in  case  of  dispute,  the  rights  of  the  buyer  will  be  less  likely 
to  be  defeated. 

65.  What  constitutes  a  contract. — In  this  view  of  the  matter, 
what  are  some  of  the  fundamental  rules  and  principles  of  the 
contract  to  purchase  personal  property  which  through  custom 
and  the  recognition  of  years  have  obtained  the  force  and  sanction 
of  law?  It  is  obvious,  of  course,  that  in  making  a  purchase,  two 
parties  are  involved,  i.e.,  the  buyer  and  the  seller  and  that  before 
the  purchase  can  be  consummated,  these  two  parties  must  reach 
an  agreement.     This  all-important  agreement  is  in  law  called  the 

70 


SOME  OF  THE  LEGAL  ASPECTS  OF  PURCHASING  71 

contract  upon  which  all  their  future  relations  with  reference  to 
the  transaction  are  based.  The  generally  accepted  legal  test  as 
to  whether  a  contract  has  been  made  or  not  depends  upon 
whether  one  of  the  parties  has  made  an  offer  to  sell  or  buy  on 
certain  terms,  which  has  been  accepted  by  the  other  party. 
The  question  of  determining  whether  there  exists  such  an  offer 
and  acceptance  resolves  itself  into  an  inquiry  as  to  whether 
there  appears  to  have  been  *'a  meeting  of  the  minds"  of  the 
buyer  and  seller,  that  is  to  say,  have  the  buyer  and  seller  ap- 
parently agreed  one  with  the  other  to  buy  and  sell  certain  definite 
articles  upon  mutually  understood  terms  and  conditions.  In 
determining  whether  this  state  of  mind  apparently  exists  between 
the  buyer  and  the  seller,  we  have  to  consider  and  examine  certain 
factors  which  we  call  evidence.  This  evidence  may  consist 
solely  of  conversations  between  the  buyer  and  seller  in  which  case 
(if  there  appears  to  have  been  an  agreement),  we  call  the  contract 
a  verbal  one.  It  may  on  the  other  hand  consist  of  correspondence 
which  has  passed  between  them  upon  which  the  law  can  base  a 
contract;  it  may  consist  in  the  conduct  of  the  respective  parties 
from  which  the  law  will  imply  or  infer  a  contract;  it  may  consist 
of  a  formal  written  document  which  is  literally  the  contract 
itself;  or,  it  may  consist  of  a  combination  of  these  various 
elements.  We  see  therefore  the  relatively  high  importance  of 
all  conversations,  conduct,  correspondence  and  transactions 
by  and  between  the  buyer  and  the  seller,  inasmuch  as  they  all 
constitute  evidence  as  to  what  the  parties  apparently  intended 
to  do  and  therefore  as  to  what  in  law  they  will  be  deemed  to  have 
actually  contracted  to  do  and  must  consequently  carry  out.  It 
behooves  the  buyer  therefore  to  be  careful  and  exact  in  all  his 
dealings  and  negotiations  with  the  seller  (and  in  the  language 
which  he  employs)  leading  up  to  the  making  of  the  contract  of 
purchase.  And  since  this  matter  of  an  offer  and  an  acceptance 
thereof  is  in  law  the  essential  element  of  the  contract,  it  is  im- 
portant that  the  purchaser  for  his  part  conduct  the  negotiations 
with  the  seller  with  some  definite  understanding  as  to  what  an 
offer  by  either  himself  or  the  seller  consists  of  and  as  to  what  in 
law  is  contemplated  by  an  acceptance  of  such  an  offer. 

The  purchaser  should  clearly  distinguish  in  his  dealings  with 
the  seller  between  definite  proposals  or  offers,  the  acceptance 
of  which  would  constitute  a  contract,  and  transactions  leading 
up  to  the  making  of  a  definite  offer.     For  instance,  if  the  pur- 


72  PURCHASING 

chaser  wishes  to  obtain  bids,  estimates  or  quotations  on  a 
purchase  of  goods  which  he  has  in  mind,  he  should  be  careful  to 
frame  his  request  accordingly  so  that  it  will  be  clear  that  he 
himself  is  not  making  an  offer  to  buy  but  is  asking  that  an  offer 
to  sell  be  made  to  him.  And  when  receiving  a  quotation  from 
the  seller,  the  buyer  should  carefully  scrutinize  the  form  of  the 
same  so  as  to  make  sure  that  it  is  really  a  definite  offer  which 
has  been  submitted  by  the  seller  and  not  a  tentative  bid.  If  it 
takes  the  form  of  a  definite  offer  to  sell  and  the  purchaser  wishes 
to  take  advantage  of  the  same,  he  should  do  so  by  promptly 
communicating  his  acceptance  to  the  seller;  otherwise  by  lapse 
of  time  or  by  the  seller  withdrawing  his  offer,  the  buyer  may  lose 
his  chance  of  accepting  the  same.  Another  thing  to  be  borne  in 
mind  is  the  effect  of  a  modification  made  by  one  of  the  parties 
of  the  other's  offer,  that  is  to  say,  if  the  seller  makes  a  definite 
offer  to  sell  certain  goods  at  a  certain  price  and  the  buyer  com- 
municates an  acceptance  making,  however,  certain  modifications 
to  the  offer,  this  does  not  constitute  an  acceptance  of  the  same  but 
on  the  contrary  constitutes  a  new  offer  by  the  buyer  which  is 
subject  to  the  seller's  acceptance  or  rejection.  The  most  prac- 
tical suggestion  which  might  be  made  with  respect  to  obtaining 
exact  and  clear  results  is  the  use  of  standardized  written  forms 
of  communication.  The  last  chapter  contains  suggestions  for 
such  forms. 

66.  Importance  of  reducing  contracts  to  writing. — We  have 
now  discussed  in  a  general  and  very  superficial  way  some  of 
the  fundamental  elements  which  enter  into  the  formation  of 
the  contract.  We  have  seen  that  from  a  practical  stand- 
point, that  which  is  of  primary  importance  are  the  negotiations, 
dealings,  transactions  and  communications  which  take  place 
and  pass  between  the  respective  parties.  As  everything  in  the 
last  analysis  goes  back  and  depends  upon  an  interpretation  of 
such  matters,  it  is  of  vital  importance  that  they  be  carried  on  in 
the  clearest  way  possible.  This  being  so,  there  can  be  no  ques- 
tion as  to  the  practical  desirability  and  even  necessity  of  written 
communications.  While  it  is  true  that  a  great  many  contracts 
are  originally  made  by  word  of  mouth,  it  is  an  unfailing  good 
rule  to  confirm  the  same  in  writing  at  the  earliest  convenient 
moment  and  before  the  period  for  executing  the  contract  sets 
in.  In  this  way  many  mistakes  and  misunderstandings  are 
rectified  at  the  very  beginning  and  before   either  party  has 


SOME  OF  THE  LEGAL  ASPECTS  OF  PUROHASING  73 

changed  his  position  as  a  result  of  what  he  thought  was  the 
understanding.  The  use,  therefore,  of  standardized  forms  of 
letters,  telegrams,  etc.,  asking  for  quotations,  accepting  offers, 
giving  orders,  confirming  purchases,  etc.,  is  of  prime  importance. 
From  the  buyer's  standpoint  it  is  of  particular  importance  that 
he  receives  from  the  seller  some  writing  formally  incorporating 
the  terms  of  the  contract  itself  or  confirming  a  contract  which 
has  already  been  made  by  word  of  mouth. 

67.  Statutes  of  frauds. — This  matter  of  incorporating  or  fixing 
in  writing  the  terms  of  the  contract  is  not  only  of  primary 
importance  from  a  practical  business  point  of  view,  so  that  the 
carrying  out  of  the  transaction  may  be  facilitated  and  misunder- 
standings obviated,  but  under  statutory  enactment  it  is  a  matter 
of  absolute  legal  necessity  if  the  buyer  would  be  in  a  position 
to  hold  the  seller  at  law  to  the  performance  of  the  contract  or 
for  damages  for  a  breach  thereof.  Such  enactments  are  known 
as  Statutes  of  Frauds  and  have  been  enacted  in  practically  all 
jurisdictions.  Such  laws  require  contracts  for  the  sale  of  per- 
sonal property  to  be  evidenced  by  some  form  of  writing,  con- 
summation or  action,  before  they  can  be  proved  or  enforced 
in  a  court  of  law,  in  case  of  a  litigated  dispute.  These  statutes 
are  designed  to  prevent  a  fraudulent  claiming  of  a  contract  and 
the  proving  of  the  same  by  means  of  false  oral  testimony.  As 
applied  to  contracts  for  the  purchase  and  sale  of  goods,  these 
statutes  generally  declare  such  contracts  (involving  a  purchase 
price  over  a  certain  amount)  to  be  unenforceable  at  law  unless 
one  of  the  following  requirements  has  been  complied  with: 

1.  Some  writing  or  memorandum  must  be  signed  by  the 
party  to  be  charged.  From  the  standpoint  of  the  buyer,  this 
would  mean  that  the  seller  would  have  to  sign  some  memorandum 
or  writing  containing  the  bare  essentials  of  the  contract  before 
the  buyer  could  enforce  the  contract  against  him.  It  is  generally 
held  that  any  memorandum,  letter,  telegram,  etc.,  is  sufficient 
compliance  with  the  statute. 

2.  Or  a  part  payment  of  the  purchase  price  by  the  buyer 
will  render  the  contract  susceptible  of  proof  in  a  court  of  law  and 
therefore  enforceable. 

3.  Or  the  delivery  to  the  ])uyer  of  part  of  the  goods  and  the 
acceptance  of  them  by  the  buyer  will  also  take  the  contract 
out  of  the  statute  so  that  it  can  be  proved  and  enforced. 

The  careful  buyer  who  wants  to  be  sure  in  case  of  a  dispute 


74  PURCHASING 

that  he  will  be  in  a  position  to  prove  and  enforce  his  contract 
at  law  should  see  that  one  of  the  foregoing  requirements  has 
been  complied  with.  The  best  rule,  of  course,  is  to  have  the  seller 
sign  some  writing  containing  the  terms  of  the  purchase. 

68.  Modification  of  Contracts. — In  considering  the  very  dis- 
tinct and  decided  advantages  and  desirability  of  the  written 
word  over  the  spoken  one  in  the  making  of  the  contract,  the 
purchaser  should  bear  in  mind  the  rule  of  law  that  a  written 
contract  once  made  cannot  in  case  of  a  dispute  at  law  be  changed 
or  modified  by  some  oral  understanding  between  the  parties. 
In  other  words,  the  law  presumes  that  the  terms  of  the  contract 
are  those  that  are  written  down  and  evidence  that  some  change 
was  thereafter  made  in  the  written  terms  by  word  of  mouth  will 
not  be  allowed.  If,  therefore,  after  making  a  contract  to  pur- 
chase which  has  been  reduced  to  writing,  the  purchaser  effects 
some  change  by  oral  arrangement,  he  should  have  it  confirmed 
by  reducing  it  to  writing  so  as  to  make  the  change  effectual  at 
law  in  case  of  a  dispute. 

We  have  now  seen  (1)  that  the  contract  to  purchase  is  based 
upon  an  offer  and  the  acceptance  thereof;  (2)  that  whether  there 
has  been  an  offer  and  acceptance  in  law  depends  upon  an  exami- 
nation and  interpretation  of  the  dealings,  negotiations,  letters, 
conduct,  writings,  etc.,  had  between  the  parties,  in  order  to 
ascertain  whether  the  minds  of  the  parties  have  apparently  met  ; 
(3)  that  it  is  necessary  to  distinguish  carefully  between  definite 
offers  and  mere  estimates  or  tentative  bids,  and  that  an  accept- 
ance to  be  effectual  must  usually  be  prompt  and  made  in  the 
terms  of  the  offer;  and  (4)  thatthebestandlegallynecessary  way  to 
deal  in  order  to  reach  the  desired  understanding  is  by  written  com- 
munication or  by  written  confirmation  of  verbal  understandings. 

69.  Quantity  and  Quality  Clauses  in  Contracts. — We  will  now 
assume  that  the  purchaser  and  seller  have  reached  a  point  where 
they  want  to  do  business  and  enter  into  a  contract  by  the  actual 
making  of  an  offer  and  acceptance.  What  are  the  essential  terms 
of  the  contract  for  the  buyer  to  keep  in  mind  and  see  to  it  that 
they  are  incorporated  in  the  contract? 

One  of  the  most  important  terms  to  the  purchaser  has  to  do 
with  the  goods  themselves,  that  is  to  say,  the  amount  of  the 
goods  to  be  purchased  and  their  kind  and  description. 

As  to  quantity.  It  is  comparatively  simple  to  state  in  so  many 
words  or  figures  the  exact  amount  of  the  goods  to  be  purchased. 


SOME  OF  THE  LEGAL  ASPECTS  OF  PURCHASING  75 

The  chief  thing  to  be  careful  about  if  the  goods  are  of  such  a 
character  as  to  require  a  measurement  by  some  unit,  is  to 
provide  for  a  standard  by  which  the  exact  amount  may  be 
ascertained. 

As  to  the  quaUty  or  the  kind  and  description  of  the  goods. 
Perhaps  the  most  important  term  of  the  contract  for  the 
purchaser  to  consider  is  one  that  will  best  insure  the  actual 
delivery  to  him  of  just  the  kind  of  goods  which  he  has  intended 
to  purchase  and  for  which  he  is  paying  or  in  the  event  of  such 
goods  not  being  delivered  such  a  term  as  will  insure  to  him  a 
remedy  by  recovery  of  money  damages  against  the  seller.  In 
order  to  bring  about  this  result  under  the  contract,  the  pur- 
chaser cannot  be  too  explicit  and  exact  (if  the  absolute  delivery 
of  the  article  contracted  for  is  essential  to  the  success  of  his 
business)  in  setting  forth  a  description  of  the  goods  and  insisting 
that  the  contract  contain  a  positive  promise  by  the  seller  that 
goods  of  the  description  specified  will  actually  be  delivered. 
Such  an  undertaking  by  the  seller  has  the  force  and  effect  of  a 
warranty;  and  upon  the  failure  of  the  seller  to  make  good,  the 
buyer  can  hold  him  for  damages.  The  purchaser  should  clearly 
distinguish  between  the  usual  implied  condition  that  the  seller 
will  deliver  the  goods  of  the  kind  and  description  contracted  for 
or  otherwise  the  buyer  may  reject  the  same,  and  the  promissory 
condition  by  the  seller  whereunder  the  latter  positively  agrees  to 
make  an  actual  delivery  of  the  goods  specified.  In  the  former 
case,  in  the  event  of  the  seller  failing  to  deliver  the  proper  goods, 
the  buyer  has  no  remedy  against  him  for  damages  for  any  loss 
he  has  been  put  to  in  depending  upon  a  delivery  of  the  right  goods 
but  may  simply  reject  the  goods  tendered.  In  the  latter  case, 
however,  the  buyer  has  an  enforceable  remedy  for  damages  under 
the  contract. 

But  the  careful  buyer  will  go  even  further  in  better  insuring 
himself  so  as  to  obtain  the  proper  goods  or  otherwise  to  obtain  a 
remedy  against  the  seller.  This  is  by  insisting  that  the  seller 
warrant  the  goods  purchased  and  to  be  delivered  as  being  of  such 
a  kind  and  of  such  a  quality  (definitely  describing  the  same)  or  as 
fit  for  a  certain  specified  use.  In  order  to  avail  himself  of  the 
advantage  of  such  a  warranty,  the  buyer  in  negotiating  for  his 
purchase  should  inform  the  seller  in  detail  as  to  actually  what 
kind  of  goods  he  wants  to  buy,  and,  if  it  is  an  article  of  a  special- 
ized character,  as  to  the  use  to  which  he  contemplates  putting  the 


76  PURCHASING 

goods.  The  seller  contracting  to  furnish  the  goods  under  these 
circumstances  can  be  held  strictly  to  the  performance  of  the 
promise  of  such  a  warranty  whether  it  be  expressed  or  implied. 
The  better  plan,  however,  is  to  get  the  warranty  of  the  seller 
definitely  in  writing. 

There  are  other  ways  by  means  of  which  the  buyer  may  insure 
himself  of  obtaining  the  goods  that  he  wants  or  of  having  a 
definite  remedy  in  the  event  of  a  failure  of  the  seller  to  furnish 
them.  For  instance,  the  buyer  may  insist  that  the  goods  to 
be  furnished  will  have  to  correspond  with  a  certain  sample 
which  the  seller  has  submitted;  or  he  may  stipulate  in  the  con- 
tract (which  is  usual  in  the  case  of  the  installation  of  machinery, 
etc.)  that  the  goods  will  have  to  be  delivered  and  installed  for  a 
trial  for  a  certain  period  to  satisfy  the  buyer  or  measure  up  to  a 
certain  test  which  has  been  agreed  upon  in  the  contract. 

70.  The  passing  of  the  title  to  the  goods. — It  is  of  prime 
importance  to  the  buyer  to  have  a  working  knowledge  of  the 
conditions  which  affect  a  dehvery  to  him  of  the  goods,  and  under 
what  circumstances  title  to  the  goods  passes  from  the  seller  to 
the  buyer  and  some  of  the  legal  consequences  thereof.  Generally 
speaking,  if  the  goods  are  in  a  deUverable  state,  i.e.,  ready,  usable 
and  set  apart,  title  to  the  same  may  pass  to  the  buyer  even 
though  the  goods  have  not  actually  and  physically  been  delivered 
into  the  latter's  possession.  Also,  generally  speaking,  there  is  a 
delivery  by  the  seller  to  the  buyer  when  the  former  hands  the 
goods  to  the  carrier,  i.e.,  the  railroad  company  or  other  trans- 
portation agency,  to  be  taken  to  the  buyer.  The  significance 
of  this  rule  of  law  to  the  buyer  lies  in  the  fact  that  under  these 
circumstances,  in  case  the  goods  are  lost  or  damaged  during 
transportation,  the  loss  falls  upon  the  buyer  even  though  the  goods 
have  not  actually  been  delivered  to  him  and  he  has  never  seen  them. 
Under  these  circumstances,  the  buyer  would  have  to  pay  the 
purchase  price  to  the  seller  and  present  and  collect  his  claim 
against  the  transportation  agency.  This  result  is  the  legal 
consequence  of  the  rule  of  title  to  the  goods  passing  to  the  buyer 
upon  the  delivery  of  the  same  by  the  seller  to  the  carrier,  es- 
pecially when  the  carrier  is  designated  by  the  buyer.  The 
careful  buyer,  however,  can  avoid  the  legal  consequences  of  this 
situation  by  stipulating  in  liis  contract  that  dehvery  of  the  goods 
is  to  be  made  to  him  at  a  particular  place.  In  this  case  it  is  the 
duty  of  the  seller  to  pay  the  transportation  charges  and  physically 


SOME  OF  THE  LEGAL  ASPECTS  OF  PURCHASING  77 

deliver  the  goods  to  the  buyer  at  his  destination;  under  these 
circumstances,  the  seller  does  not  part  with  title  to  the  goods 
and  is  responsible  for  any  loss  up  to  the  time  of  actual  delivery. 
The  usual  way  by  which  the  buyer  specifies  such  an  arrangement 
in  the  contract  is  a  stipulation  that  the  goods  be  delivered  F.O.B. 
at  his  place  of  business  or  at  the  place  where  he  wishes  to  use  the 
goods.  Another  advantage  which  accrues  to  the  buyer  under 
this  arrangement  is  an  assurance  that  his  legal  right  to  inspect 
the  goods  before  acceptance  will  be  protected  and  not  lost  as  is 
the  case  if  delivery  is  made  to  him  when  the  seller  hands  the 
goods  over  to  the  carrier  and  the  goods  are  lost  in  transit. 

71.  Time  clauses  in  contracts. — As  to  delivery  generally, 
the  contract  should,  of  course,  clearly  specify  the  place  and  the 
time  of  delivery.  If  no  time  is  specified  the  law  presumes  that 
delivery  is  to  be  made  within  a  reasonable  time  after  the  order  is 
given.  As  to  what  constitutes  a  reasonable  time  depends  upon 
the  nature  and  circumstances  of  each  particular  case.  It  is 
clear  therefore  that  if  time  is  important  and  to  avoid  uncertainty 
a  definite  time  should  be  specified.  It  should  also  be  clearly  set 
forth  as  to  whether  a  total  dehvery  must  be  made  at  one  time  or 
whether  it  may  be  made  in  installments  and,  if  so,  the  size  and 
time  of  delivery  of  the  various  installments.  Prompt  delivery  on 
a  certain  date  is  often  a  matter  of  much  moment  to  the  buyer.  He 
either  needs  the  goods  at  a  certain  time  orjhe  does  not  need  them  at 
all,  or  else  if  he  does  not  receive  them  promptly,  he  may  suffer  a 
serious  loss.  If  any  of  these  situations  are  at  all  likely  to  arise, 
a  careful  buyer  will  have  them  in  mind  in  making  his  contract 
and  will  see  to  it  (1)  that  a  definite  time  is  fixed  for  the  delivery 
of  the  goods;  (2)  that  the  contract  contains  a  term  that  the  time 
of  dehvery  is  "of  the  essence,''  i.e.,  that  it  is  highly  essential 
that  the  seller  make  delivery  strictly  on  the  contract  date ;  and 
(3)  that  in  the  event  of  a  failure  to  deliver  on  the  contract  date 
(or  where  it  is  apparent  that  the  seller  will  not  be  able  to  deliver 
on  the  date  specified) ,  the  buyer  may  cancel  the  contract  and  buy 
elsewhere.  It  is  often  useful  to  include  in  the  contract  a  clause 
providing  that  if  the  goods  are  not  delivered  on  time,  the  seller 
shall  be  liable  to  pay  to  the  buyer  a  certain  fixed  amount,  known 
as  ''liquidated  damages."  In  fixing  such  an  amount,  liowever, 
it  is  important  to  have  it  appear  that  it  really  is  on  account  of 
damages  which  will  be  caused  to  the  buyer  by  the  failure  to  de- 


78  PURCHASING 

liver  and  not  a  mere  penalty  to  punish  the  seller.     If  the  latter, 
it  is  not  enforceable  at  law. 

72.  Inspection  of  Goods. — Generally  speaking,  the  buyer 
has  the  right  to  inspect  all  goods  upon  their  delivery  before 
accepting  them.  It  has  been  held,  however,  that  the  buyer  has 
not  this  right  prior  to  the  payment  of  the  purchase  where  the 
goods  are  sent  C.O.D.  The  suggestion  is  made,  therefore,  that 
when  goods  are  to  be  paid  for  upon  dehvery,  the  buyer  provide 
in  his  contract  that  he  shall  have  the  right  to  inspect  the  goods 
before  having  to  pay  for  the  same.  The  buyer  should  be  careful 
in  exercising  and  availing  himself  of  the  right  of  inspection  if  he 
does  not  wish  it  thereafter  urged  that  he  waived  any  defects  in 
the  goods  which  an  inspection  of  the  same  would  have  disclosed. 
After  the  buyer  has  inspected  the  goods  and  decided  that  he  does 
not  wish  to  accept  them  because  of  some  defect  in  quantity, 
quality  or  what  not,  he  should  be  extremely  careful  not  to  act  in 
relation  to  the  goods  or  to  the  seller  in  such  a  way  as  would 
be  inconsistent  with  a  rejection  of  the  goods.  On  the  contrary 
upon  deciding  to  reject  the  goods,  he  should  act  promptly  and 
unequivocally  by  notifying  the  seller  that  he  will  not  accept  the 
goods  because  of  certain  defects.  In  stating  to  the  seller  his 
objections  to  accepting  the  goods,  he  should  be  clear  and  com- 
prehensive, as  all  unstated  objections  will  be  deemed  to  have 
been  waived  by  him.  The  purchaser,  however,  may  accept  the 
goods  which  are  nevertheless  defective  and  still  hold  the  seller 
for  damages  for  breach  of  warranty,  if  he  notifies  the  seller 
promptly  as  to  his  objections  to  the  goods. 

73.  Fixing  price  terms  in  a  contract. — We  have  discussed 
the  terms  of  the  contract  as  to  exactly  what  kinds  of  goods  are 
wanted,  how  the  particular  quality  of  the  goods  is  to  be  tested 
or  determined  or  otherwise  insured  by  warranty,  and  how  much 
of  the  goods  are  to  be  purchased.  There  is  also  the  matter  of 
fixing  the  price  of  the  goods  in  the  contract.  Generally  speaking, 
there  are  two  ways  of  specifying  the  purchase  price.  One  is  by 
fixing  the  price  per  unit  and  reaching  the  total  by  multiplying 
the  unit  price  by  the  number  of  units  received  and  the  other 
method  is  by  simply  stating  a  lump  sum  for  the  goods.  These 
two  methods  adapt  themselves  to  different  kinds  of  purchases. 
Where  the  contract  is  based  upon  estimates  of  amounts  which 
cannot  be  definitely  ascertained  until  after  the  contract  is  carried 
out,  it  sometimes  is  much  better  to  write  the  price  on  the  unit 


SOME  OF   THE  LEGAL  ASPECTS  OF  PURCHASING  79 

basis  and  thus  get  the  benefit  of  any  amount  under  the  estimate, 
unless  the  purchaser  is  sure  that  the  estimate  will  fall  short  of 
the  actual  requirements  in  which  case  stating  a  lump  sum  price 
might  be  more  advantageous.  From  a  legal  standpoint,  the 
matter  of  fixing  the  price  is  usually  a  simple  matter.  Having 
fixed  the  price  in  the  contract,  the  terms  as  to  how  and  when 
the  same  should  be  paid  should  be  determined  upon.  This 
matter  also  from  a  legal  standpoint  offers  no  serious  problem. 

We  have  now  discussed  in  a  superficial  manner  the  most 
essential  points  that  the  buyer  should  keep  in  mind  when  making 
his  contract.  An  observance  of  the  rules  involved  ought  to 
obviate  for  the  most  part  what  otherwise  are  unnecessary 
disputes  and,  in  case  of  a  misunderstanding,  leave  the  situation 
unclouded.  When  real  trouble  comes,  or  large  and  particularly 
important  contracts  are  to  be  drawn,  or  when  in  doubt,  the  buyer 
should  consult  his  lawyer.  Professional  aid  and  advice  in  the 
beginning  costs  much  less  and  is  far  more  satisfactory  in  results 
than  having  to  pay  for  legal  services  in  a  litigation. 


CHAPTER  IX 
DEPARTMENTAL  ORGANIZATION 

74.  Relation  between  size  of  business  and  size  of  the  pur- 
chasing department. — The  organization  of  the  purchasing  de- 
partment will  depend  on  the  size  of  the  business.  It  would  seem 
to  need  no  demonstration  that  a  corporation,  whose  purchases 
amount  to  one  or  two  hundred  thousand  dollars  annually,  does 
not  need  much  in  the  way  of  a  purchasing  department,  whereas  a 
corporation  whose  purchases  amount  to  many  milUons  annually 
must  needs  have  a  department  organized  with  a  very  great  deal 
of  care.  Nevertheless,  it  is  not  unusual  to  find  in  this  age,  when 
system  and  efficiency  are  constantly  proclaimed,  that  there 
exist  small  businesses  unable  to  operate  with  facility  because  of 
too  much  red  tape,  while  large  corporations  are  struggling  along 
unaware  that  they  have  outgrown  the  organization  which 
served  their  needs  when  they  were  small.  The  latter  case  is 
especially  true  of  municipal  corporations,  always  slow  to  adopt 
the  improved  methods  which  private  corporations  find  necessary. 
Thus,  we  find  that  one  of  the  largest  cities  of  the  country,  with 
yearly  purchases  of  supplies  to  the  extent  of  approximately 
$15,000,000  pays  more  for  them  than  the  average  small  corpora- 
tion; buys  articles  for  one  of  its  departments  when  another 
department  has  in  storage  the  same  articles  in  greater  quantities 
than  it  can  use;  pays  one  price  in  one  part  of  the  municipality  and 
an  entirely  different  price  for  the  same  thing  in  another;  wastes 
large  sums  annually  by  not  discounting  bills  although  with 
plenty  of  money  on  hand  to  do  so;  and  is  only  now  awakening  to 
the  advisabilit}^  of  installing  a  common-sense  plan  which  should 
have  been  adopted  years  ago. 

75.  Relation  between  nature  of  business  and  size  of  the 
purchasing  department. — The  organization  of  the  purchasing 
department  will  depend  not  only  on  the  amount  of  yearly 
purchases  but  on  the  nature  of  the  business  as  well.  One  man 
can  purchase  a  tremendous  quantity  if  the  purchases  be  made  in 
large  lots,  or  if  the  variety  of  articles  purchased  be  small.     One 

80 


DEPARTMENTAL  ORGANIZATION  81 

man  can  purchase  more  from  the  dollar  and  cents  standpoint  if 
he  deals,  say,  in  coal  only  than  the  man  who  buys  for  a  chain  of 
five-  and  ten-cent  stores.  Not  only  can  he  buy  more,  but  he  will 
need  less  assistance  in  following  up  the  orders  after  they  are 
placed  to  see  that  they  are  shipped  in  time  and  come  up  to 
specifications.  Detail  takes  time  and  where  there  is  detail  there 
are  required  more  hands  to  take  care  of  it  properly.  Therefore, 
it  is  not  hard  to  see  that  the  man  who  buys  coal  will  require  less 
help  than  he  who  buys  an  equal  value  of  five-  and  ten-cent 
articles. 

The  buyer  for  a  contracting  company  which  maintains  practi- 
cally no  storage  facilities  will  require  a  purchasing  department 
differing  from  that  required  by  a  corporation  with  a  warehouse 
and  which  uses  the  same  variety  of  articles  year  in  and  year  out 
since  the  latter  can  judge  its  needs  sufficiently  in  advance  to  stock 
them.  The  detail  involved  in  one  case  may  be  the  same  as  in 
the  other,  but  the  contractor  usually  wants  deliveries  promptly, 
and  rush  orders  require  more  attention  than  routine  orders. 
Hence  a  corporation  with  a  large  percentage  of  rush  orders  will 
require  a  larger  purchasing  organization  than  one  which  buys 
principally  for  stock  though  the  annual  value  of  their  purchases 
be  equal.  Corporations  which  maintain  storerooms  often  put 
them  under  the  purchasing  agent,  who  must  organize  accord- 
ingly. In  the  opinion  of  the  author,  however,  the  store  or  stock- 
room should  be  in  charge  of  the  accounting  department  where 
proper  records  can  best  be  kept. 

Some  businesses  have  very  marked  rush  and  dull  seasons, 
the  buying  for  the  entire  year  being  done  during  one  season. 
Obviously  such  a  concern  could  not  maintain  an  elaborate  pur- 
chasing department  during  the  dull  season  even  though  it  were 
highly  efficient  during  the  busy  period.  In  fact,  any  department 
of  any  business  should  be  so  designed  that  it  can  be  expanded  or 
contracted  in  conformity  with  the  volume  of  business  to  be 
transacted.  Failure  to  recognize  this  simple  fact  has  been  the 
cause  of  the  bankruptcy  of  many  corporations  through  excessive 
overhead  expense. 

Some  businesses  are  so  highly  specialized  that  no  one  purchas- 
ing department  can  be  organized  to  do  all  of  the  buying.  Each 
purchase  may  require  the  skill  and  judgment  of  an  expert. 
Knowledge  of  the  salability  of  an  article  may  be  paramount. 
It  may  be  impossible  to  impart  to  a  central  purchasing  agent, 


82 


PURCHASING 


on  paper,  full  information.  In  such  cases  each  department  of 
the  business  should  do  its  own  buying  and  there  will  be  no  need 
of  a  central  purchasing  department. 

76.  A  typical  purchasing  department. — From  the  foregoing  it 
is  not  hard  to  understand  that  it  is  impossible  to  lay  out  a  pur- 
chasing department  that  will  fit  any  business  unless  the  nature 
and  size  of  that  business  be  known  in  advance,  any  more  than  one 
could  design  a  light  and  power  plant  for  a  municipality  without 
first  knowing  the  size  and  nature  of  the  municipality.  However, 
it  is  possible  to  set  down  the  lines  of  good  standard  practice  and 
this  may  serve  as  the  suggestive  basis  on  which  to  work  in  any 
specific  case. 


Incoming^ 
Requisitions 

General  Purchasing  Agent 
Assistant  Purchasing  Agent 

Outgoing 
Orders 

Unapproved  Invoices 

Approved  Invoices 

1 

1 

Transportation 
Clerk 

Chief  Clerk 

Branch 
Purchasing  Agents 

1 

1 

Stenographers 

Telephone  Operator 

Office  Boys 

Price  Clerk 

Bookkeepers 

1 

1 

Clerks  for  Tabulating 
and  Filing  Quotations 

Miscellaneous 

Clerks  for  Filing 
Catalogs,  Correspond- 
ence, etc. 

77.  The  general  purchasing  agent  and  his  assistant. — It  will 
be  the  duty  of  the  general  purchasing  agent  to  take  care  of 
the  general  management  and  supervision  of  his  department.  A 
large  part  of  his  time  will  be  taken  in  the  negotiation  of  large 
orders  or  contracts,  particularly  when  they  reach  the  closing 
stages.  He  will  formulate  the  policies  which  his  department  is 
to  pursue,  seeing  that  it  accords  with  the  general  policy  of  the 
corporation  which  he  represents.  He  will  represent  his  depart- 
ment in  consultations  with  the  executive  heads  of  the  other 
departments,  such  as  the  accounting  department,  auditing 
department,  construction  department,  contract  department,  etc. 
All  differences  which  arise  between  his  department  and  another 


DEPARTMENTAL  ORGANIZATION  83 

will  be  for  his  consideration.  He  will  often  indicate  to  his 
chief  clerk  the  sellers  from  whom  he  wishes  bids  on  a  given 
requisition,  and  he  will  keep  a  general  oversight  of  the  progress 
of  orders  of  special  importance,  even  after  they  are  placed. 
In  short,  he  will  be  the  responsible  head,  mainspring  and  in- 
spiration of  his  department. 

The  assistant  purchasing  agent  will  assist  the  general  pur- 
chasing agent  in  whatever  way  he  may  be  instructed.  It  is 
usual  for  the  assistant  purchasing  agent  to  take  as  much  of  the 
detail  off  the  shoulders  of  the  general  agent  as  practicable.  He 
will  usually  examine  all  correspondence  intended  for  his  superior, 
bringing  to  his  attention  only  such  as  is  most  important.  In 
fact  he  will  ordinarily  handle  all  the  routine  matters  so  that  his 
superior  will  have  a  large  part  of  his  time  free  for  consultation. 
The  assistant  will  sign  many  papers  requiring  the  general 
purchasing  agent's  name;  he  will  usually  be  in  direct  charge 
of  the  transportation  clerk  and  the  branch  purchasing  agents, 
if  any,  and  he  will  be  supreme  in  the  absence  or  disability  of  the 
general  purchasing  agent. 

78.  The  chief  clerk. — The  chief  clerk  will  report  to  the  general 
or  assistant  purchasing  agent,  and  be  responsible  for  all  the 
clerical  work  of  the  purchasing  department.  In  many  cases 
he  will  determine  who  shall  bid  and  send  out  the  requests  for 
tenders.  Much  of  the  routine  correspondence  relating  to  bids, 
prices,  etc.,  will  be  handled  by  him  either  direct  or  in  the  general 
purchasing  agent's  name.  He  will  be  responsible  for  the  dis- 
cipline of  the  department.  In  the  absence  of  both  the  general 
and  assistant  purchasing  agents  he  will  act  as  the  executive  of 
the  department. 

79.  The  price  clerk. — The  duties  of  the  price  clerk  will  consist 
primarily  in  maintaining  accurate  and  up-to-date  price  records, 
checking  invoices  for  material  delivered  to  see  that  same  are 
correct  as  to  price  (although  this  is  often  done  in  the  accounting 
department),  examining  tabulated  bids  to  see  that  the  prices 
are  in  Hue  with  the  market,  and  in  general  supervising  the  filing 
of  all  papers. 

80.  The  transportation  clerk. — It  will  be  the  duty  of  the 
transportation  clerk  to  keep  posted  on  freight  rates,  to  examine 
freight  charges  and  to  prepare  claims  for  overcharges.  He 
will  also  watch  orders  after  they  are  placed  to  see  that  they  are 
shipped  promptly  and  not  delayed  in  transit.     This  is  frequently 


84  PURCHASING 

a  very  important  service.  The  lack  of  a  small  article  may  delay 
the  operation  of  a  large  number  of  men.  In  many  corporations 
the  cost  of  proper  tracing  is  small  compared  to  the  possibility  of 
loss  due  to  the  delay  in  the  arrival  of  materials. 

81.  Inspection,  testing  and  storing  of  materials. — The  in- 
spection and  testing  of  materials  either  during  manufacture  or 
after  delivery  will  usually  be  under  the  engineering  department, 
and  not  the  purchasing  department.  The  purchasing  agent, 
however,  will  furnish  the  engineering  department  with  a  copy  of 
the  order  and  specifications  in  order  that  the  engineering  depart- 
ment may  know  what  it  is  entitled  to  demand  of  the  manufacturer 
or  seller.  If,  however,  the  business  does  not  include  an  engineer- 
ing department,  the  inspecting  and  testing  should  be  under  the 
purchasing  department,  in  which  case  the  inspector  should  report 
to  the  general  or  assistant  purchasing  agent  direct.  Instruc- 
tions to  inspectors  will  usually  require  that  the  superior  who  issues 
them  has  a  considerable  knowledge  of  the  technical  side  of  the 
business.  While  for  that  reason  it  is  best  to  have  inspections 
made  by  the  engineering  department,  yet  if  there  is  no  engineer- 
ing department,  the  general  purchasing  agent  will  not  wish  to  dele- 
gate this  duty  to  his  chief  clerk  who  probably  would  not  be  as 
well  equipped  technically  as  himself. 

The  storehouses  and  the  materials  therein  should  be  under  the 
accounting  department  or  else  under  whatever  department  will 
use  the  stores.  The  accounting  department  is  the  logical  one 
to  supervise  stores,  to  keep  a  running  inventory  of  supplies  on 
hand,  and  to  make  i-equisition  to  the  general  purchasing  agent 
when  supplies  need  to  be  replenished.  Under  this  plan,  the 
construction  or  other  department  which  requires  the  supplies 
from  time  to  time,  will  requisition  the  accounting  department 
for  its  needs.  A  more  extended  description  of  the  working  of 
the  storehouse  for  large  corporations  is  to  be  had  from  the 
extracts  from  the  report  on  the  "Proposed  plan  for  the  central 
purchase  and  distribution  of  supplies  for  the  City  of  New  York" 
given  in  Sec.  84. 

82.  Miscellaneous  clerks. — The  other  clerks  that  may  be 
needed  and  their  respective  duties  can  be  seen  from  the  diagram 
which  is  self-explanatory  and  needs  no  elaboration. 

83.  Detailed  routine  from  origin  of  requisition  to  receipt  of 
goods. — In  order  better  to  illustrate  the  workings  of  a  purchasing 
department,  a  specific  hypothetical  case  will  be  taken.     We  will 


DEPARTMENTAL  ORGANIZATION  85 

assume  that  by  means  of  the  perpetual  inventory  the  stock  clerk 
of  a  certain  factory  discovers  that  there  are  10,000  of  a  certain 
type  malleable  casting  on  hand.  We  will  assume  that  this  is  the 
minimum  quantity  which  it  had  been  decided  to  keep  as  a  re- 
serve stock.  The  stock  clerk  (assuming  he  reports  to  the  account- 
ing department)  will  immediately  make  requisition  (in  triplicate 
— one  copy  for  himself  and  two  for  his  superior)  on  the  chief 
accountant  for  the  same  number  as  were  received  by  him  on  the 
last  order,  say  10,000.  The  chief  accountant  will  first  see  what 
his  instructions  are  as  regards  stock,  for  he  may  have  been 
advised  that  because  business  is  poor,  the  stocks  should  be 
reduced  30  per  cent.  He  will  also  note  what  other  stocks  of  the 
same  items  are  in  other  localities  or  warerooms.  Further,  he  will 
see  if  the  quantity  used  since  the  last  requisition  checks  with 
the  other  reports  of  output  or  whether  there  seems  to  have  been 
any  leakage.  He  will  also  know  if  funds  are  available.  Let  us 
assume  that  the  chief  accountant  who  is  in  charge  of  stock 
decides  to  cut  the  order  to  5,000  for  one  or  more  of  the  fore- 
going reasons.  He  therefore  approves  the  requisition  for  "5,000 
only"  and  passes  it  to  the  general  purchasing  agent's  office, 
retaining  one  copy  of  this  paper.  (See  page  117  for  form  of 
requisition.) 

While  theoretically  the  general  purchasing  agent  receives  this 
requisition,  in  practice  it  will  be  more  likely  to  go  to  his  assistant 
who  will  consult  with  the  operating  or  designing  department  to 
make  sure  that  there  has  been  no  change  in  design  since  the  last 
order.  If  not,  he  will  indicate  on  the  back  of  the  requisition  who 
is  to  bid  and  send  it  to  the  chief  clerk  with  instructions  to  take 
figures.  The  chief  clerk  will  send  out  requests  for  tenders 
(see  form,  page  111),  and  these  will  be  tabulated  (see  page  122) 
as  soon  as  received.  The  price  clerk  will  also  indicate  the  prices 
paid  on  one  or  two  previous  orders,  and  send  to  the  chief  clerk 
who  will  choose  the  successful  bidder.  The  order  (see  page  125) 
will  then  be  made  out  and  sent  to  the  general  purchasing  agent 
for  signature,  together  with  the  original  requisition  and  tabu- 
lated bids. 

Up  to  this  time,  the  work  has  been  routine.  It  is  at  this  point 
that  the  purchasing  agent  should  do  his  bargaining  if  he  desires. 
How  to  do  this  we  have  already  discussed  under  Strategy.  When 
the  general  purchasing  agent  decides  to  let  the  order  go  through, 
he  signs  and  returns  all  papers  to  the  chief  clerk.     The  next  step 


86  PURCHASING 

of  the  chief  clerk  is  to  make  an  entry  in  the  ''order  register" 
(see  page  134).  The  requisition  number,  bid  sheet  number, 
order  number,  date  of  order,  name  of  firm  receiving  order,  name 
of  item  and  date  shipment  has  been  promised  are  all  noted.  The 
original  order  is  then  mailed,  the  duphcate  going  to  the  stock 
clerk  while  the  triplicate  is  kept  in  the  purchasing  department. 
The  other  papers  are  filed.  From  here  on  the  transportation 
clerk  completes  the  order  register  record  and  tracer  record 
(see  page  134). 

When  the  goods  are  received,  the  stock  clerk  sends  a  record  of 
that  fact  to  the  purchasing  department  on  the  proper  form 
(see  page  159)  attached  to  the  duplicate  copy  of  the  order  which 
he  had  received  when  the  order  was  placed.  When  the  invoice 
arrives  the  purchasing  department  has  full  information  to 
check  it  from  the  order  and  the  stock  clerk's  receiving  ticket. 
The  invoice  after  approval  goes  to  the  accounting  department 
with  the  duplicate  order  and  receiving  ticket  still  attached.  Now 
the  accounting  department  can  check  it  again,  voucher  it  and 
pay  when  due. 

84.  Proposed  system  for  New  York  City. — On  March  15, 1913, 
the  comptroller  of  the  City  of  New  York  Hon.  William  Pren- 
dergast,  submitted  a  report,  prepared  by  W.  Richmond  Smith 
of  the  Bureau  of  Standardization,  which  contains  so  much 
valuable  information  on  the  subject  of  the  purchase  of  supplies, 
their  storage  and  distribution  that  the  greater  portion  of  the 
report  is  quoted  herewith: 

"In  the  past  three  years  efiforts  have  been  made  to  apply  modern 
systems  and  methods  to  many  of  the  business  activities  of  the  City  of 
New  York.  One  of  the  first  administrative  acts  of  the  present  comp- 
troller was  to  secure  the  appointment  of  a  select  committee  of  the  Board 
of  Estimate  and  Apportionment  to  devise  a  more  efficient  method  for 
the  purchase  of  supplies  by  the  various  city  departments.  Under  his 
direction  the  Commission  on  Standardization  was  organized  to  investi- 
gate the  conditions  under  which  supplies  are  at  present  obtained,  and 
to  formulate  specifications  by  which  such  supplies  could  be  most 
advantageously  purchased. 

For  more  than  three  years  the  staff  of  the  Commission  on  Standardiza- 
tion has  been  engaged  in  a  constructive  investigation  of  the  methods 
employed  in  the  purchase  and  distribution  of  supplies  by  the  various 
city  departments.  Records  compiled  and  evidence  secured  during  this 
investigation  make  it  apparent  that  existing  methods  are  absolutely 
archaic,  grossly  wasteful  and  hopelessly  inefficient.     The  decentralized 


DEPARTMENTAL  ORGANIZATION  87 

system  prescribed  in  the  city  charter,  whereby  the  head  of  every  depart- 
ment, bureau,  board,  commisssion  and  office  under  the  city  government 
is  vested  with  the  power  to  purchase  supplies,  makes  impossible  the  ap- 
plication of  the  fundamental  principles  which  underlie  all  modern  effect- 
ive systems  for  the  purchase  and  distribution  of  supplies  in  use  by  the 
great  railway  and  other  large  commercial  corporations  of  the  country. 

"With  these  conditions  in  mind,  acting  under  your  instructions,  a 
careful  study  has  been  made  of  some  of  the  most  successful  systems  of 
centralized  purchase  through  a  general  purchasing  head  and  distribution 
through  a  general  storehouse.  The  desire  was  to  avoid  experiments 
and  find  a  system  in  actual  successful  operation  which  could,  with  all 
its  essential  elements  of  control,  be  adapted  to  the  requirements  of  the 
city.  The  plan  submitted  in  this  report  is  copied  from  the  system  of 
the  Canadian  Pacific  Railway  Company  of  Canada.  It  was  selected 
rather  than  the  system  of  any  of  the  large  commercial  corporations  in 
this  country  because  the  wide  range  of  that  company's  purchases  more 
nearly  approximated  the  range  of  the  supplies  required  by  the  City  of 
New  York. 

"Access  was  had  to  every  detail  of  the  operation  of  a  system  by  means 
of  which  approximately  $80,000,000  worth  of  supplies  are  purchased  an- 
nually for  every  requirement  of  over  12,000  miles  of  railway  with  its  sleep- 
ing and  dining-car  services,  its  transatlantic  and  transpacific  steamship 
lines  and  its  string  of  high-class  hotels  extending  across  the  entire  con- 
tinent. Every  dollar's  worth  of  this  tremendous  amount  of  supplies 
and  materials  of  all  kinds  is  purchased  by  a  general  purchasing  agent 
upon  adequate  specifications,  with  perfect  control  over  quantities  and 
prices  upon  requisitions  before  purchase.  Through  the  medium  of 
centrally  located  storehouses  an  equally  complete  control  is  maintained 
over  storehouse  stocks  and  distribution  to  thousands  of  delivery  points 
extending  across  the  continent  from  the  Atlantic  to  the  Pacific.  By 
means  of  the  simplest  forms,  requisitions  are  made  and  filled  with  amaz- 
ing promptness  without  storehouse  overstocks,  largely  because  one  of 
the  aims  of  the  system  is  to  keep  a  two  months'  stock  of  materials  and 
supplies  in  greatest  demand  on  hand  in  storehouse  all  the  time.  Every 
form  is  designed  to  secure,  in  addition  to  contributing  to  the  permanent 
records,  the  closest  kind  of  control  reports  over  the  quantities  and  cost 
of  supplies  and  materials  for  each  function  of  the  company's  great  enter- 
prise. With  only  such  changes  as  were  necessary  to  adapt  it  to  the  city's 
requirements,  this  system  and  its  forms  are  embodied  in  the  plan  here- 
with submitted  for  the  City  of  New  York. 

"The  plan  proposed  contemplates  such  amendments  to  the  city 
charter  as  are  necessary  to  permit  of  the  creation  of  a  Department 
of  Purchase,  the  head  of  which  shall  be  a  Board  of  Purchase  consisting 
of  the  mayor,  the  comptroller  and  the  president  of  the  Board  of  Aldermen. 

"The  appointment  by  this  Board  of  a  general  purchasing  agent, 


88  ^PURCHASING 

who  shall  hold  office  during  good  behavior  and  shall  be  removable  only 
upon  proven  charges,  in  whom  will  be  vested  the  authority  to  purchase 
all  supplies  required  by  the  various  departments  of  the  city  govern- 
ment and  prepare  all  vouchers  for  the  payment  thereof. 

"The  appointment  by  this  Board  of  a  general  city  storekeeper,  who 
shall  hold  office  during  good  behavior  and  shall  be  removable  only  upon 
proven  charges,  in  whom  will  be  vested  control  over  the  receipt  and 
distribution  of  all  suppHes  purchased  for  the  various  departments  of  the 
city  government,  except  perishable  suppHes  for  daily  delivery  and  coal, 
wood  and  forage. 

"These  officials  shall  have  co-equal  authority,  each  in  the  discharge 
of  his  particular  functions,  and  both  shall  report  to  the  board  of 
purchase. 

"The  principal  objection  urged  against  the  adoption  by  the  city  of 
a  centralized  purchase  plan  for  supplies  in  the  past  has  been  that  the 
vesting  in  a  single  official  of  the  power  to  make  all  purchases  would  inevit- 
ably lead  to  gross  and  serious  abuses  of  that  power.  The  organization 
planned  for  the  proposed  Department  of  Purchase  in  the  most  complete 
possible  manner  removes  that  objection  by  giving  to  the  heads  of  the 
eighteen  largest  purchasing  departments  in  the  city  supervision  over 
every  act  of  the  general  purchasing  agent.  This  feature  is  secured 
without  expense  by  providing  that  the  purchasing  agent  appointed  by 
each  one  of  the  eighteen  department  heads  shall  be  moved  from  his 
department  to  the  office  of  the  general  purchasing  agent,  and  there  exer- 
cise a  supervisory  control  over  all  supply  requisitions  emanating  from 
his  department.  In  addition,  it  is  proposed  that  both  the  general 
purchasing  agent  and  the  general  storekeeper  shall  be  paid  salaries 
large  enough  to  attract  the  best  men  available,  and  that  they  shall  have 
the  greatest  possible  security  of  tenure  in  their  positions.  With  these 
safeguards  the  city  can  secure  the  same  measure  of  safety  in  the  adminis- 
tration of  the  proposed  Department  of  Purchase  as  is  afforded  by  the 
system  of  any  of  the  large  commercial  corporations. 

"How  SUPPLIES  ARE  PURCHASED  BY  THE  CiTY. — There  are  under 
the  government  of  the  City  of  New  York  120  different  departments, 
bureaus,  boards,  commissions  and  offices  in  the  various  heads  of  which 
is  vested  the  power  to  purchase  supplies.  When  the  new  municipal 
building  in  Park  Row  is  fully  occupied  there  will  be,  under  one  roof,  no 
less  than  forty-eight  city  purchasing  agents,  or  two  to  each  occupied 
floor  of  the  building,  each  buying  practically  the  same  line  of  supplies. 

"In  no  two  departments  of  the  city  are  the  methods  and  customs 
the  same.  There  is  no  uniform  system  of  making,  recording  and 
accounting  for  purchases.  In  this  respect  each  department  is  a  law 
unto  itself.  No  central  records  are  maintained  showing  the  relative 
cost  of  supplies  bought  by  different  departments.  Each  proceeds  in 
utter  ignorance  of  what  the  others  are  doing.     There  is  absolutely  no 


DEPARTMENTAL  ORGANIZATION  89 

means  of  making  the  experience  and  knowledge  acquired  by  one  depart- 
ment of  practical  value  to  another.  The  larger  the  quantity  purchased 
the  lower  the  price,  is  one  of  the  fundamental  laws  of  supply  and  demand 
recognized  in  every  modern  purchasing  system.  Not  only  do  the  citj^'s 
purchase  methods  ignore  this  law,  in  dividing  the  gross  quantities  of 
supplies  needed  into  the  smaller  quantities  required  for  over  one  hundred 
different  departments,  bureaus,  boards,  commissions  and  offices,  but, 
in  some  of  the  largest  purchasing  departments,  a  further  division  is 
made  of  the  quantities  needed  for  bureaus  and  institutions  within  a 
single  department.  The  result  is,  that  the  city  is  buying  at  retail 
millions  of  dollars'  worth  of  supplies  annually  which  it  should  purchase 
at  wholesale  prices,  or  even  less.  Tabulations  prepared  by  the  Com- 
mission on  Standardization  of  Supplies  show  a  remarkable  variation 
between  the  prices  paid,  under  publicly  advertised  contracts,  for  the 
same  supplies  by  different  departments,  even  upon  uniform  standard 
specifications. 

"One  of  the  greatest  and  most  costly  evils  in  the  city's  methods  of 
purchasing  supplies  is  the  abuse  of  what  is  known  as  the  open  market 
order  method.  The  city  charter  makes  it  obligatory  upon  all  depart- 
ment heads  to  buy  supplies  upon  publicly  advertised  contracts,  but 
permits  purchases,  not  exceeding  $1,000  at  any  one  time,  upon  open 
market  order  without  competition.  It  is  obvious  that  this  charger 
permission  to  procure  supplies  upon  open  market  order  was  intended  to 
cover  only  small  emergency  purchases.  An  analysis  of  the  voucher 
records  in  the  Department  of  Finance  for  the  year  1909  shows  that, 
of  $12,218,766  expended  for  supplies  out  of  budget  appropriations  and 
special  revenue  bond  funds  in  that  year,  no  less  than  $3,918,066  was 
expended  upon  open  market  orders,  at  least  two-thirds  of  that  amount 
without  competition.  As  an  evidence  that  the  year  1909  was  not 
exceptional  in  this  regard,  the  same  voucher  records  for  1911  show  that, 
of  $13,023,800  expended  for  supplies  out  of  budget  appropriations  and 
special  revenue  bond  funds  in  that  year,  $3,568,797  was  expended  upon 
open  market  orders,  about  the  same  proportion  without  competition. 
Careful  comparison  of  the  unit  prices  paid  for  supplies  by  the  city  upon 
publicly  advertised  contracts  and  upon  open  market  purchases  without 
competition  shows  that  supplies  bought  upon  open  market  orders 
cost  about  25  per  cent,  more  than  the  same  supplies  purchased  upon 
contracts.  The  records  indicate  that  whole  lines  of  supplies  are  pur- 
chased upon  open  market  order  that  could  just  as  easily,  and  far  more 
economically,  be  purchased  under  publicly  advertised  contracts.  It 
is  axiomatic  with  large  commercial  corporations  that  emergency  purchases 
of  supplies  shall  not  exceed  3  per  cent,  of  the  entire  expenditure  for 
that  purpose.  That  the  emergency  purchases  of  the  City  of  New  York 
exceed  30  per  cent,  of  the  whole  is  clear  evidence  that  departments  are 
continually  in  the  habit  of  splitting  supply  orders  so  as  to  bring  open 


90  PURCHASING 

market  order  purchases  within  the  legal  limit  of  less  than  $1,000  at  any 
one  time. 

"The  proposed  central  purchase  plan. — The  proposed  plan  con- 
templates the  centralization  of  the  purchase  of  all  supplies  required  by 
every  city  department,  bureau,  board,  commission  and  office  under  the 
city  government.  All  purchasing  will  be  done  by  a  general  purchasing 
agent,  who  shall  be  responsible  for  the  prices  paid  for  all  supplies  requi- 
sitioned for  by  various  city  departments,  whether  delivered  direct 
or  through  the  general  city  storehouse.  He  shall  also  be  responsible 
for  the  preparation  of  all  vouchers  to  be  forwarded  to  the  Department 
of  Finance  in  payment  for  supplies  received  and  accepted  by  the  City. 
It  is  proposed  that  the  central  purchasing  system  shall  be  organized  and 
operated  upon  exactly  the  same  fundamental  lines  as  the  central  pur- 
chasing systems  of  the  great  railway  and  other  large  commercial  cor- 
porations. The  forms,  procedure  and  records  to  be  used  are  copied 
from  one  of  the  most  effective  systems  on  the  continent,  with  only  such 
changes  as  were  necessary  to  adapt  them  to  the  city's  use. 

"All  supplies  required  by  city  departments,  except  perishable  supplies 
for  daily  delivery  and  coal,  wood  and  forage,  will,  under  the  new  plan, 
be  requisitioned  for  by  the  general  storekeeper  and  purchased  for  delivery 
once  a  month  to  the  general  city  storehouse  in  the  gross  quantities  re- 
quired for  the  entire  city.  Thus,  instead  of  the  different  lines  of  supplies 
being  purchased  upon  a  hundred  or  more  different  contracts  at  widely 
varying  unit  prices  for  delivery  to  as  many  different  departments,  en- 
entire  lines  will  be  bought  upon  a  single  contract  covering  the  gross 
quantities  required  for  all  departments,  at  one  lowest  unit  price,  for 
delivery  once  a  month  at  a  single  delivery  point — the  general  city  store- 
house. Instead  of  bids  being  asked  for  covering  every  conceivable  kind 
of  supply  in  a  single  contract,  bids  will  be  asked  for  covering  the  gross 
quantity  required  in  a  single  trade  line  under  one  contract.  This  uni- 
fication of  quantities  of  supplies  required  to  be  purchased  will  so  greatly 
reduce  the  number  of  payment  vouchers  that  the  city  should  be  able  to 
take  advantage  of  special  cash  discounts  in  the  paj'mcnt  of  its  supply 
bills.  The  combined  unification  of  quantities,  the  asking  for  bids 
along  trade  lines  and  the  prompt  payment  for  supplies  delivered  should 
greatly  increase  competition  for  the  city's  supply  contracts,  and  cor- 
respondingly reduce  prices.  The  plan  contemplates  departments 
making  all  requisitions  for  perishable  supplies  for  daily  delivery  and  for 
coal,  wood  and  forage  upon  the  general  purchasing  agent  direct,  as 
supplies  of  this  character  will  not  be  handled  through  the  general  city 
storehouse.  Purchases  will  be  made  covering  the  gross  quantities  of 
these  supplies  required  by  all  departments,  but  deliveries  will  be  made 
by  the  vendor  direct  to  the  different  departments  in  the  quantities 
called  for  in  their  requisitions.  The  handling  of  practically  all  the 
different  Unes  of  supplies  required  by  city  departments  through  the 


DEPARTMENTAL  ORGANIZATION  91 

general  city  storehouse  will  permit  the  prompt  fiUing  of  department 
requisitions.  It  will  also  do  away  with  the  necessity  for  purchasing 
so  large  a  proportion  of  the  city's  supplies  upon  open  market  order. 
To  prevent,  however,  any  possibility  of  a  continuation  of  the  existing 
abuse  of  the  open  market  order  purchase  method  of  obtaining  supplies, 
the  proposed  plan  contemplates  the  purchase  of  all  supplies  over  $200 
and  under  $1,000  in  value  upon  what  is  known  as  the  bulletin  board 
system  of  informal  tenders.  As  fast  as  the  necessity  arises  for  placing 
these  small  orders,  the  general  purchasing  agent  will  post  upon  a  bulletin 
board  in  his  office  a  list  of  the  supplies  to  be  purchased  and  state  the 
time  when  informal  bids  will  be  received,  opened  and  the  orders  placed 
with  the  lowest  bidder.  Small  purchases  of  supplies  to  the  value  of 
$200  may  be  made  by  the  general  purchasing  agent  at  his  discretion. 

"The  centralization  of  purchase  affords  every  facility  for  the  exercise 
of  a  proper  supervision  over  all  requisitions  for  the  purchase  of  supplies. 
Every  well-devised  system  of  centralized  purchase  should  also  provide  a 
prompt  means  of  control  over  all  orders  issued  and  payment  vouchers 
passed  for  supplies  purchased.  The  proposed  plan  includes  the  prepara- 
tion by  the  general  purchasing  agent  of  a  daily  control  statement 
showing  the  city's  complete  approximate  contingent  liability  for  supplies 
ordered,  as  well  as  its  complete  actual  liability  for  supplies  vouchered 
for  payment.  This  daily  summary  of  the  order  and  voucher  action  of 
the  supply  department  shows  from  day  to  day  the  value  of  all  supplies 
ordered  and  paid  for,  segregated  into  the  main  funds  against  which  the 
cost  of  all  supplies  are  chargeable.  It  also  indicates  from  day  to  day  the 
exact  rate  at  which  appropriations  voted  in  the  annual  budget  are 
first  encumbered  through  the  issue  of  orders,  and  then  expended  upon 
vouchers  for  payment. 

"The  putting  into  effect  of  the  proposed  plan  for  centralizing  the 
purchase  of  supplies  for  the  City  of  New  York  would  entail  very  little 
expense,  but  it  would  on  the  other  hand  accomplish: 

"1.  The  unification  of  all  purchases,  so  that  the  city  may  be  able 
to  buy,  through  its  general  purchasing  agent  at  minimum  unit  prices, 
the  gross  quantities  of  supplies  required,  instead  of  purchasing  those 
requirements  as  it  does  now  through  one  hundred  or  more  departmental 
purchasing  agents  at  widely  varying  unit  prices. 

"2.  The  correction  of  the  present  abuse  of  what  is  known  as  the 
open  market  order  method  of  purchasing  supplies  without  competition 
by  compelling  the  purchase  of  all  supplies  costing  in  excess  of  $200 
and  up  to  $1,000  by  informal  tender  upon  what  is  known  as  the 
bulletin  board  method  of  securing  competition. 

"3.  The  creation  of  a  daily  control  over  all  orders  for  supplies  in 
advance  of  the  execution  of  the  same,  so  that  there  may  be  a  compre- 
hensive and  efficient  administrative  supervision  over  supply  purchases 
for  the  entire  city. 


92  PURCHASING 

"4.  A  great  reduction  in  the  number  of  vouchers  for  payment  of 
supplies  due  to  the  unification  of  purchases  for  all  departments,  with  a 
consequent  reduction  in  the  time  required  to  make  payment  for  all 
supplies  purchased. 

"5.  The  broadening  of  competition  for  city  supply  contracts  by  the 
unification  of  quantities  and  the  asking  for  bids  for  the  gross  quantities 
required  in  same  trade  lines  in  a  single  contract,  instead  of,  as  at  present, 
asking  for  bids  upon  segregated  quantities  covering  a  dozen  different 
lines  in  a  single  contract. 

"How    SUPPLIES    ARE     RECEIVED     AT    AND     DISTRIBUTED     FROM     CITY 

STOREHOUSES. — The  most  important  function  of  a  storehouse  system 
is  to  control  and  account  for  the  receipt  and  distribution  of  supplies 
required  for  immediate  use.  The  modern  s^^orehouse  is  a  clearing  house 
through  which  supplies  are  received  in  anticipation  of  immediate  re- 
quirements and  distributed  promptly  to  meet  those  requirements. 

"In  this  sense  the  City  has  no  storehouse  system.  There  is  abso- 
lutely no  uniformity  in  the  methods  of  keeping  records  of  the  receipt 
and  distribution  of  supplies,  and  in  very  many  cases  the  records  that  are 
kept  are  hopelessly  inadequate.  City  storehouses  are  repositories  in 
which  supplies  vastly  in  excess  of  immediate  requirements  are  stored 
until  such  time  as  they  may  be  required  for  actual  use,  with  the  result 
that  huge  overstocks,  representing  millions  of  dollars  are  carried  all  the 
time. 

"No  complete  inventories  showing  stock  on  hand  at  the  end  of  1912 
are  available,  but  partial  inventories,  supplemented  by  information 
secured  from  departmental  records,  indicate  that  there  were  in  city 
storehouses,  in  which  records  are  maintained,  on  December  31,  1911, 
supplies,  in  excess  of  immediate  requirements,  to  the  value  of  over 
$4,000,000.  This  does  not  include  the  value  of  supplies  in  excess  of 
actual  requirements  stored  away  for  future  use  in  storerooms,  storage 
places  and  locked  closets,  for  which  no  proper  records  are  maintained. 
It  would  take  a  large  staff  many  months  to  secure  a  complete  inventory 
of  all  the  supplies  which  the  City  has  bought  and  paid  for  from  year  to 
year  and  which  have  never  been  issued  for  actual  use.  It  is  certain 
that  such  an  inventory  would  disclose  supplies  to  the  value  of  many 
thousands  of  dollars  which  have  been  virtually  lost  in  storage.  Some 
departments  have  as  many  as  half  a  dozen  storehouses  in  which  delivery 
of  supplies  direct  from  vendors  is  accepted,  and  in  no  one  of  the  half 
dozen  are  controlling  departmental  records  maintained,  of  either  receipts 
or  deliveries.  In  some  cases  caretakers  and  engineers  are  allowed  to 
draw  from  storehouses,  or  receive  by  direct  delivery  from  vendors,  sup- 
plies sufficient  to  last  them  for  months,  and  in  many  instances  entries 
made  in  lead  pencil  in  dirty  pass  books  are  the  only  records  kept. 

"The  method  emploj^ed  in  preparing  the  City's  annual  expense  budget 
makes  it  necessary  for  departmental  supply  officials  to  estimate  the 


DEPARTMENTAL  ORGANIZATION  93 

amount  of  appropriations  required  at  least  sixteen  months  in  advance. 
With  the  assistance  of  the  most  complete  storehouse  records,  this  would 
be  a  difficult  thing  to  do  accurately,  but  with  the  more  or  less  chaotic 
records  that  are  maintained  in  most  city  storehouses  it  is  manifestly 
impossible  for  the  makers  of  the  city's  annual  budget  to  do  more  than 
approximate  departmental  supply  requirements.  Appropriations  in 
any  given  year  are  based  upon  the  amount  appropriated  in  the  year 
previous,  with  such  increases  or  decreases  as  appear  to  be  warranted 
from  the  wholly  inadequate  storehouse  records  and  other  data  available. 
In  order  to  be  on  the  safe  side  in  this  guesswork,  departments  endeavor 
to  secure  the  largest  possible  appropriation.  This  inevitably  leads  to 
over-purchasing  and  the  storing  away  of  surplus  supplies  in  locked  rooms 
and  closets  against  the  time  when  such  surplus  stock  might  be  required. 
The  unfailing  regularity  with  which  budget  appropriations  for  supplies 
are  always  expended,  and  never  prove  too  large,  though  they  so  often 
prove  too  small,  is  an.  indication  of  the  extent  to  which  a  proper  store- 
house system  would  put  an  end  to  extravagance,  overstocking,  and 
perhaps  even  worse  conditions  in  the  receipt  and  distribution  of  supplies. 

"The  segregation  of  items  in  the  annual  budget  into  separate  appro- 
priations for  divisions,  bureaus  and  institutions  within  a  single  depart- 
ment has  resulted  in  a  corresponding  segregation  of  supplies  purchased 
under  these  appropriations,  with  the  result  that  one  bureau  or  institu- 
tion within  a  department  might  have  an  overstock  of  a  certain  article, 
while  another  bureau  or  institution  within  the  same  department  might 
have  to  go  into  the  open  market  and  purchase,  at  non-competitive  prices, 
a  supply  of  the  same  article  needed  for  immediate  use. 

"In  the  report  of  the  Division  of  Inspection  of  the  Department  of 
Finance  published  in  December,  1909,  giving  the  'points  at  which  sup- 
plies are  received  for  the  City  of  New  York,'  there  are  enumerated 
over  2,000  different  places  at  which  supplies  presumably  delivered  by 
vendors  are  received  and  accepted  by  the  City.  It  is  only  necessary 
to  state  this  fact  to  indicate  the  effect  such  a  distribution  of  delivery 
points  must  have  upon  competition  and  the  prices  paid  for  supplies, 
as  well  as  the  task  it  imposes  upon  inspectors  in  ascertaining  whether  or 
not  deliveries  are  properly  made,  and  upon  storekeepers  in  maintaining 
proper  store  and  distribution  accounts. 

"The  proposed  general  storehouse  plan. — The  proposed  plan 
contemplates  the  establishment  of  a  general  storehouse,  organized  and 
operated  as  a  clearing  house  for  the  receipt  and  distribution  of  all 
supplies  required  by  every  city  department,  except  perishable  supplies 
and  coal,  wood  and  forage,  which  will  be  delivered  by  the  vendor  direct 
to  the  departments  for  which  they  are  ordered.  The  general  city  store- 
house will  be  in  charge  of  a  general  storekeeper  who  shall  be  responsible 
for  the  receipt  and  distribution  to  departmental  storehouses  of  prac- 
tically all   supplies   purchased  by   the    City,     The  storehouse  will  be 


94  PURCHASING 

organized  and  operated  upon  exactly  the  same  fundamental  lines  as 
the  general  storehouses  of  the  great  railway  and  other  large  commercial 
corporations  are  organized  and  operated.  The  forms,  procedure  and 
records  to  be  used  are  copies  from  one  of  the  most  effective  systems  on 
the  continent,  with  only  such  changes  as  were  necessary  to  adapt  them 
to  the  City's  use.  The  plan  contemplates  the  keeping  on  hand  of  one 
month's  stock  of  all  supplies  that  are  handled  and  distributed  from  the 
general  storehouse,  with  a  second  month's  stock  order  at  the  beginning 
of  each  month.  The  method  of  ordering  stock  and  issuing  supplies 
to  departmental  storehouses  for  distribution  necessitates  the  mainte- 
nance of  a  perpetual  inventory  of  stock  on  hand  in  general  storehouse. 
It  also  provides  for  the  keeping  of  records  of  distribution  that  will  as- 
sure the  most  complete  control  over  all  supplies  ordered  by  and  delivered 
to  departmental  storehouses. 

"The  establishment  of  a  general  citj^  storehouse  involves  the  creation 
of  a  general  stores  fund,  to  provide  money  for  the  payment  of  supplies 
at  the  time  they  are  received  at  the  general  storehouse  and  before  they 
are  issued  to  departments,  when  the  cost  of  the  supplies  actually 
received  can  properly  constitute  a  charge  against  the  departmental 
appropriations.  This  stores  fund  could  be  created  at  once  by  the  depart- 
ments consenting  to  the  transfer  of  one-quarter  of  the  supply  appropria- 
tions voted  to  them  in  the  current  year's  budget  to  the  fund  thus 
created.  This  arrangement  would  permit  the  immediate  establishment 
of  a  general  storehouse,  the  supplies  being  paid  for  as  received  out  of 
general  stores  fund.  Every  three  months,  upon  quarterly  statements  by 
the  general  storekeeper,  credits  would  pass  to  the  general  stores  fund  and 
corresponding  debits  pass  to  the  departmental  appropriations  for  supplies 
furnished  by  the  general  storehouse  and  accepted  by  departments. 

"The  plan  also  contemplates  the  installation,  in  all  departmental  and 
sub-storehouses  from  which  supplies  are  distributed,  of  uniform  store 
records  and  store  accounts  which  would  correlate  with  the  store  records 
and  store  accounts  proposed  for  the  general  city  storehouse. 

"In  a  report  presented  to  Congress  during  December  last  year  by  a 
sub-committee  of  that  body,  appointed  to  inquire  into  the  method  of 
purchasing  supplies  for  the  District  of  Columbia,  the  establishment  of 
a  general  storehouse  was  the  only  important  improvement  recommended 
as  the  result  of  an  exhaustive  inquiry.  The  reasons  given  for  the  recom- 
mendation that  a  general  storehouse  be  immediately  established  in  the 
District  of  Columbia  were: 

"That  with  200  delivery  points  for  supplies  large  dealers  were  pre- 
vented from  bidding  on  supply  contracts  and  that  a  general  storehouse 
would  enlarge  the  field  of  competition  and  ensure  lower  prices. 

"That  the  concentration  of  delivery  points  would  afford  proper 
facilities  for  the  enforcement  of  adequate  specifications,  and  permit 
uniform  and  adequate  inspection  of  all  dehveries. 


DEPARTMENTAL  ORGANIZATION  95 

"That  the  establishment  of  a  general  storehouse  would  bring  the 
District  into  line  with  general  industrial  and  commercial  practice,  and 
would  be  at  once  a  business-like  arrangement  and  a  profitable 
investment. 

"The  putting  into  effect  of  the  proposed  plan  in  the  City  of  New  York 
would  require  the  construction  of  a  suitable  storehouse  in  a  central 
locality  and  the  purchase  of  sufficient  motor  trucks  to  make  deliveries 
of  supplies  to  departments,  but  it  would  on  the  other  hand  accomplish: 

"l.  The  concentration  at  one  point  of  the  delivery  of  practically  all 
supplies  purchased  by  the  City,  broadening  competition,  reducing  the 
unit  costs,  affording  every  facility  for  the  uniform  enforcement  of 
adequate  specifications  and  making  possible  uniform  and  adequate  in- 
spection of  all  deliveries. 

"2.  A  great  reduction  in  the  amount  of  money  now  continually  locked 
up  in  large  overstocks  of  supplies  in  city  storehouses  not  required  for 
immediate  use. 

"3.  A  reduction  in  the  time  required  to  furnish  supplies  to  any  city 
department  through  the  carrying  in  stock  of  sufficient  quantities  of 
supplies  in  general  use  to  permit  the  immediate  filling  of  departmental 
requisitions. 

"4.  The  absolute  control  over  the  distribution  of  all  kinds  of  supplies 
to  every  city  department  by  the  creation  of  comprehensive  uniform 
departmental  and  general  storekeepers'  records,  accounts  and  perpetual 
stock  inventories. 

"5.  The  creation  of  records,  not  at  present  maintained,  by  which 
the  makers  of  the  City's  annual  expense  budget  could  recommend 
the  authorization  of  appropriations  for  supplies  based  upon  complete 
and  accurate  information  showing  the  actual  user  of  supplies  and  the 
quantities  carried  in  stock  from  year  to  year  in  every  city  storehouse. 

"6.  The  utilization  of  the  general  storehouse  for  the  taking  over 
from  departments  of  used  equipment  at  an  agreed  valuation,  for  which 
they  would  receive  credit,  and  the  re-issuing  of  the  same  to  other  depart- 
ments requiring  it,  thus  saving  the  difference  between  the  prices  obtained 
for  used  equipment  at  forced  sales  and  the  cost  of  new  equipment  which 
would  otherwise  have  to  be  purchased. 

"7.  The  utilization  of  the  general  storehouse  for  the  systematic 
taking  over  from  departments  of  damaged  or  broken  equipment  or 
scrap  at  an  agreed  valuation,  and  its  disposal  in  large  quantities  at 
prices  greatly  in  excess  of  those  now  obtained  through  the  sale  of  small 
quantities  by  separate  city  departments. 

Central  Purchase  Plan 

"Requisitions. — All  requisitions  for  supplies  of  any  character, 
except  perishable  supplies  for  daily  delivery  and  for  coal,  wood  and 


96  PURCHASING 

forage,  are  made  upon  the  general  storekeeper,  whether  the  supplies 
are  for  direct  delivery  to  a  department  or  for  delivery  to  the  general 
storehouse  to  replenish  stock  on  hand.  Requisitions  for  supplies  re- 
quired to  be  purchased,  except  perishable  supplies  for  daily  delivery 
and  for  coal,  wood  and  forage,  are  made  by  the  general  storekeeper  upon 
the  general  purchasing  agent.  Requisitions  for  perishable  supplies 
for  daily  delivery  and  for  coal,  wood  and  forage  are  made  by  the  depart- 
ment storekeepers  upon  the  general  purchasing  agent.  Every  requisi- 
tion carries  the  departmental  or  general  storehouse  designation  and 
requisition  number,  the  title  of  the  fund  chargeable  and  the  charge 
account  number  (code  number),  and,  when  received  by  the  general 
purchasing  agent,  bears  the  certification  of  the  departmental  or  general 
storehouse  officials,  including  that  of  the  department  head  or  the  general 
storekeeper.  Departmental  requisitions  for  purchase  are  transmitted 
to  the  general  purchasing  agent  through  the  departmental  purchasing 
agent  attached  to  the  department  of  purchase.  In  case  of  small 
departments  or  offices  not  having  a  purchasing  agent,  the  requisitions 
duly  certified  are  forwarded  direct  to  the  general  purchasing  agent. 
Each  requisition  shall  bear  a  certificate  by  the  department  head,  or 
the  general  storekeeper,  that  there  is  to  the  credit  of  the  fund  out  of 
which  the  expenditure  for  supplies  is  to  be  made  sufficient  money  to 
cover  the  payment  voucher. 

"Orders. — Upon  receipt  of  a  duly  certified  requisition  the  general 
purchasing  agent,  if  he  were  acting  for  a  private  commercial  corporation, 
would  at  once  issue  an  order  to  the  firm  offering  the  best  terms.  In 
adapting  the  system  to  the  needs  of  the  City  of  New  York  the  question 
might  arise  whether  or  not  the  giving  to  the  general  purchasing  agent 
the  right  to  place  orders  without  public  bidding  is  too  wide  a  discretion 
to  repose  in  such  an  official.  It  might  be  considered  wise  to  require, 
as  is  required  under  the  existing  law,  that  all  purchases  exceeding  in 
value  $1,000  should  be  made  upon  registered  contract  after  public 
bidding.  Instead  of  allowing  expenditures  for  supplies  to  the  value  of 
$1,000  and  under  to  be  made  upon  open  market  order  without  competi- 
tion, as  is  at  present  permitted  under  the  law,  it  is  recommended  that 
all  open  market  purchases  be  confined  to  supplies  to  the  value  of  $200 
and  under,  and  that  all  expenditures  for  supplies  in  excess  of  $200 
and  up  to  $1,000  in  value  be  made  upon  informal  tenders,  secured  by 
what  is  known  as  the  bulletin  board  method  of  inducing  competition. 
As  fast  as  requisitions  are  received  calling  for  the  purchase  of  supplies 
required  for  immediate  use  in  quantities  the  value  of  which  does  not 
exceed  $1,000,  the  general  purchasing  agent  will  post  upon  a  bulletin 
board  in  his  office  a  list  of  the  supplies  to  be  purchased,  and  state  when 
bids  will  be  received,  opened  and  orders  placed  with  the  lowest  bidder. 

"General  purchasing  agent's  order  register. — As  orders  are  issued 
they  are  posted  in  an  order  register.     Each  kind  of  article  is  given  a 


DEPARTMENTAL  ORGANIZATION  97 

separate  account,  with  an  account  number  agreeing  with  its  classifica- 
tion number,  the  pages  being  numbered  seriatim  from  one  to  the  end  of 
the  account  for  the  period  which  the  register  covers.  Lead  pencils,  for 
instance,  would  be  recorded  under  four  or  more  heads,  such  as  writing, 
drawing,  paper,  carpenter's,  etc.,  while  brass  badges,  for  example,  would 
be  recorded  under  one  head,  more  detail  description  being  given  in  the 
column  material  ordered.  In  no  case  will  a  page  of  the  order  register 
contain  items  covered  by  more  than  one  specification.  The  first  half 
of  the  form  contains  details  of  the  orders  issued,  while  the  second  half 
provides  for  subsequent  entries  showing  deliveries  on  account,  with 
the  invoice  data,  prices  and  total  value.  Blank  lines  are  left  upon  which 
are  to  be  made  subsequent  entries  of  undelivered  portions  of  the  orders. 
Tracers  are  used  to  hurry  the  completion  of  deliveries,  after  which  the 
invoice  details  are  completed  in  the  order  register.  This  record  gives 
the  complete  story  of  purchases  during  the  period  it  covers  and  includes 
every  detail  of  information  necessary  for  the  preparation  of  special 
reports  relating  to  the  purchase,  cost  and  distribution  of  any  item  of 
supplies.  For  instance,  it  would  be  possible,  from  this  register,  to  state 
without  delay  the  quantity  and  cost  of  coal,  forage,  or  any  other  item 
of  supplies  purchased  and  delivered  to  any  city  department  during  a 
stated  period.  Very  interesting  comparative  statements  of  consump- 
tion by  the  various  departments  of  any  kind  of  supplies  for  given  periods 
could  be  readily  compiled  from  this  record,  which  might  suggest  econo- 
mies that  might  not  otherwise  be  evident.  Such  statements,  taken 
in  connection  with  the  departmental  records  showing  the  number  of 
employes,  inmates  and  others  in  the  city's  eleemosynary  institutions 
using  food  supplies,  would  form  an  accurate  basis  for  the  per  capita  cost 
of  such  supplies  purchased. 

"Purchases  of  equipment,  added  to  the  City's  assets  from  year  to 
year,  should  be  accounted  for  in  the  annual  inventories  prepared  by 
the  various  departments.  A  basis  for  the  verification  of  such  in- 
ventories is  afforded  by  the  records  contained  in  this  order  register  and 
those  which  appear  in  the  distribution  register  maintained  by  the  general 
storekeeper.  A  means  of  control  over  the  distribution  of  both  equip- 
ment and  consumable  supplies  could  be  established  by  this  method. 

"That  part  of  the  records  showing  deliveries  under  orders  would  also 
indicate  a  vendor's  promptness  or  lack  of  promptness  in  completing  deliv- 
eries, making  it  possible  to  penalize,  in  any  manner  decided  upon,  vendors 
with  whom  lack  of  promptness  in  making  deliveries  was  habitual. 

"When  orders  for  articles  included  in  a  contract  are  entered  in  this 
record,  the  contract  number  and  the  estimated  quantity  given  in  the 
contract  are  entered  in  the  remarks  column.  Entries  of  deliveries  then 
constitute  a  check  upon  monthly  estimates  from  departments. 

"The  record  also  shows  in  detail  the  fluctuation  in  prices  paid  for 
different  articles  of  supplies  during  the  year. 
7 


98  PURCHASING 

"General  purchasing  agent's  voucher  register. — Inasmuch  as 
all  payment  vouchers  for  supplies  ordered  are  prepared  by  the  Depart- 
ment of  Purchase,  that  department,  in  addition  to  maintaining  a  record 
of  orders  issued,  also  keeps  a  voucher  register  in  which  are  entered 
from  day  to  day  the  details  of  each  voucher  sent  forward  to  the  Depart- 
ment of  Finance  for  payment. 

"General  purchasing  agent's  contract  register. — When  invoices 
for  supplies  delivered  under  contract  are  received  at  the  end  of  each 
month  by  the  general  purchasing  agent,  entries  are  made  in  a  contract 
register  showing  the  quantity  and  value  of  the  supplies  delivered  under 
each  item  in  the  contract.  From  this  contract  register  the  general 
purchasing  agent  is  able  at  any  time  to  ascertain  the  extent  to  which 
deliveries  have  been  made  under  any  contract. 

"Daily  statement  showing  the  approximate  value  of  supplies 
ordered  and  the  values  of  supplies  vouchered. — One  of  the  most 
important  features  of  all  well-devised  systems  of  centralized  purchase 
is  a  prompt  means  of  control  over  all  orders  issued  and  payment  vouchers 
passed  for  supplies  purchased.  With  the  power  to  buy  all  supplies 
concentrated  in  a  single  purchasing  agent,  it  is  possible  to  prepare  a  daily 
control  statement  showing  the  City's  complete  approximate  contingent 
liability  for  supplies  ordered,  as  well  as  its  complete  actual  liability  for 
supplies  vouchered  for  payment.  This  statement  can  be  made  as  com- 
prehensive as  circumstances  may  demand,  but  the  usual  practice  is  to 
divide  all  supplies  into  two  main  classes — Consumable  Supplies  and 
Equipment — with  a  subdivision  of  Equipment  in  New  Equipment, 
and  Replacements.  The  statement  can  likewise  be  made  to  show  any 
number  of  funds  to  which  supplies  so  classified  may  be  chargeable. 

"This  detailed  daily  statement  of  the  approximate  value  of  supplies 
purchased  is  in  convenience  form  to  be  used  with  the  quarterly  state- 
ment issued  by  the  general  storekeeper,  in  compiling  the  total  c^uarterly 
charges  for  supplies  delivered  direct  to  departments,  and  from  general 
storehouse  to  departments,  under  the  headings  Consumable  Supplies 
and  Equipment,  New  and  Replacements.  This  is  important  because 
no  provision  is  made  in  the  records  of  the  general  purchasing  agent's 
office  for  an  account  with  each  department  separately. 

"The  chief  purpose  of  the  daily  detailed  approximate  value  statement 
is  to  afford,  in  convenient  form,  the  information  necessary  for  the  prepa- 
ration of  the  daily  summary  statement  of  approximate  values.  The 
first  half  of  this  form  shows  the  total  value  of  orders  unvouchered  to 
the  previous  day,  the  approximate  value  of  orders  issued  during  the 
current  day,  and  the  value  of  orders  vouchered  during  the  current  day, 
giving  the  grand  total  of  orders  unvouchered  to  the  day  the  statement  is 
issued.  The  second  half  of  the  form  shows  the  approximate  value  of 
orders  issued  during  the  current  month  to  the  previous  day,  the  approxi- 
mate value  of  orders  issued  during  the  current  day,  giving  the  grand 


DEPARTMENTAL  ORGANIZATION  99 

total  of  orders  issued  during  the  current  month  to  the  day  the  state- 
ment is  issued.  A  memorandum  shows  the  value  of  orders  previously 
vouchered  during  the  current  month  up  to  the  preceding  day,  the  value 
of  orders  vouchered  during  the  current  day,  giving  the  grand  total  of 
orders  vouchered  during  the  month  to  the  day  when  the  statement  is 
issued.  This  daily  summary  of  the  order  and  voucher  action  of  the 
Department  of  Purchase  therefore  gives  in  approximate  values  from  day 
to  day  the  supplies  ordered  for  departments  and  for  the  general  store- 
house, segregated  into  the  main  fund  accounts  against  which  the  costs 
of  all  supplies  are  chargeable.  It  shows  from  day  to  day  the  contingent 
liability  of  the  city  for  supplies  ordered  but  not  yet  vouchered,  as  well 
as  the  actual  liability  for  supplies  ordered  and  vouchered.  It  also 
indicates  from  day  to  daj^  the  rate  at  which  appropriations  voted  for 
supplies  in  the  annual  budget  are  first  encumbered  through  the  issue 
of  orders  and  then  expended  upon  vouchers  for  payment.  Back  of 
this  summary  is  the  daily  detailed  statement  of  approximate  values, 
the  data  for  the  compilation  of  which  are  obtained  from  the  orders  and 
the  voucher  register.  Publicity  may  be  given  to  this  statement  to  any 
extent  that  may  be  deemed  advisable,  but  it  should  be  forwarded  daily 
to  each  member  of  the  Board  of  Purchase.  By  this  means  the  three 
city  officials  most  interested  in  the  administration  of  the  city  as  a  whole 
would  be  informed  daily  of  its  activities  in  the  purchase  of  supplies  of 
which,  under  existing  conditions,  they  have  no  accurate  knowledge. 
From  this  daily  statement  a  too  rapid  expenditure  of  supply  appropria- 
tions would  become  evident  before  it  was  too  late  to  be  checked.  Un- 
necessary delay  in  vouchering  bills  for  supplies  would  also  be  shown 
by  figures  in  the  statement  giving  the  grand  total  of  orders  unvouchered. 

"The  statement  of  the  value  of  supplies  ordered  is  called  approximate 
because,  although  the  prices  at  which  the  supplies  will  be  invoiced  will 
in  most  cases  be  known  to  advance,  the  discounts  to  which  the  city  may 
be  entitled  will  not  be  known  until  the  payment  warrant  is  drawn. 

"Because  of  the  complications  involved  in  crediting  to  each  account 
its  due  proportion  of  discounts  allowed  for  prompt  payment,  it  is 
considered  that  the  amount  of  such  discounts  should  be  turned  into  the 
city  treasury  as  is  now  done  with  moneys  realized  from  the  sale  of  the 
City's  surplus  personal  property,  and  that  charges  against  departmental 
accounts  by  vouchers  covering  supply  purchases  should  be  on  the  basis 
of  the  invoice  prices. 

"Price  card  system  of  securing  approximate  values. — A  properly 
tabulated  and  easily  accessible  record  of  unit  prices  paid  is  essential  in 
securing  economy  in  the  purchase  of  supplies  both  upon  contract  and 
open  market  order.  Public  bidding  upon  supply  contracts  is  designed 
to  secure,  through  open  competition,  the  lowest  prices  obtainable.  A 
tabulated  record  of  the  unit  prices  paid  by  the  various  departments  of 
the  City  of  New  York  for  supplies  bought  upon  contract  for  given  years 


100  PURCHASING 

shows  a  very  wide  variation  in  the  unit  prices  paid  for  the  same  kind  of 
supplies  by  different  departments,  and  in  many  instances  the  prices 
so  paid  were  greatly  in  excess  of  the  average  market  price  for  such  sup- 
plies at  the  time  the  purchases  were  made.  Any  sort  of  effective  control 
over  the  prices  paid  upon  open  market  orders  would  save  the  city  many 
thousands  of  dollars  annually.  Well-devised  systems  of  purchase,  in 
order  to  control  unit  prices  paid  for  supplies,  utilize  what  is  known  as  a 
price  card  system.  Upon  separate  cards  for  each  item,  alphabetically 
arranged  by  classes  in  filing  cabinets,  is  entered  a  record  of  all  unit 
prices  paid  for  supplies  at  the  time  the  purchases  are  made.  At  any 
time  this  unit  price  record  may  be  compared  with  the  ruling  market 
price  for  the  same  class  of  supplies.  It  is  from  these  cards  that  the 
general  purchasing  agent  obtains  information  as  to  the  approximate 
value  of  supplies  purchased  upon  open  market.  The  record  is  available 
also  in  enabling  him  to  determine  whether  or  not  the  prices  bid  upon 
contracts  are  as  low  as  the  city  has  a  right  to  expect. 

"Request  FOR PKiCES  oninformal  tenders. — The  plan  contemplates 
the  purchase  of  all  supplies  over  S200  and  up  to  $1,000  in  value  upon 
what  is  known  as  informal  tenders.  It  is  also  a  matter  for  careful 
consideration  whether  or  not  this  method  could  not  with  advantage 
be  applied  to  the  purchase  of  supplies  to  a  much  greater  value.  Pur- 
chase by  informal  tenders  consists  of  requests  being  sent  to  a  limited 
number  of  dealers  asking  them  to  submit  prices  at  which  they  are 
prepared  to  furnish  the  supplies  listed  and  described  in  the  specifications 
sent  to  them.  No  security  deposit  or  bond  for  faithful  performance 
is  required  as  in  the  case  of  a  registered  contract. 

"Opportunity  for  abuse  of  the  purchasing  power  and  for  laxity  in 
securing  competition  is  present  in  any  system  of  purchasing  supplies 
upon  informal  tender.  There  is  always  the  possibilitj^  that  the  lowest 
tender  received  may  be  much  higher  than  the  proper  market  price 
unless  a  sufficient  number  of  bidders  who  are  actual  competitors  are 
requested  to  quote  or  are  notified  that  bids  will  be  received.  To  insure 
competition,  therefore,  it  should  be  required  that  a  copy  of  each  request 
to  bid  be  conspicuously  posted  upon  a  bulletin  board  in  the  office  of 
the  general  purchasing  agent.  This  practice  is  followed  in  many  of  the 
departments  of  the  Federal  Government  with  good  results.  It  is  re- 
quired by  law  that  proposed  contracts  for  supplies  be  advertised  in  the 
City  Record  and  in  certain  designated  daily  newspapers,  but  to  insure  as 
wide  publicity  as  possible,  requests  to  bid  upon  advertised  contracts 
should  also  be  posted  upon  the  general  purchasing  agent's  bulletin  board. 

General  Storehouse  Plan 

"General  storekeeper's  requisition  upon  the  general  purchas- 
ing agent  for  supplies  for  stock. — In  making  requisitions  upon  the 


DEPARTMENTAL  ORGANIZATION  101 

general  purchasing  agent  for  the  purchase  of  supplies  to  be  delivered 
direct  to  departments,  as  far  as  possible  it  should  be  sought  to  keep  on 
hand  one  month's  stock  of  all  supplies  that  are  handled  by  and  issued 
from  the  general  storehouse  with  a  second  month's  supply  on  order  at 
the  beginning  of  each  month. 

"It  will  be  noticed  that  in  requisitioning  for  supplies  for  stock,  the 
general  storekeeper  is  required  to  furnish  with  each  requisition  informa- 
tion showing  for  each  article  therein  called  for,  the  quantity  on  hand  in 
the  general  storehouse,  and  the  quantity  due  the  general  storehouse 
from  uncompleted  deliveries  on  order,  as  well  as  the  average  monthly 
consumption  of  each  article,  based  upon  the  quantities  issued  for  the 
immediately  preceding  three  months.  This  requires,  of  course,  the 
maintenance  of  a  perpetual  inventory  of  all  supplies  held  in  the  general 
storehouse. 

"General  storekeeper's  register  of  invoices  for  supplies 
PURCHASED  FOR  STOCK; — When  Supplies  are  received  at  the  general 
storehouse  the  details  of  the  invoice  or  delivery  slip  accompanying  the 
delivery  are  immediately  entered  in  a  register  of  invoices.  This  register 
is  kept  by  months  and  the  details  contained  in  the  invoices  are  indexed 
under  the  names  of  the  vendors. 

"General  storekeeper's  record  of  invoices  sent  on  for  pay- 
ment.— As  invoices  are  sent  forward  for  payment,  entries  are  made  in 
a  record  of  invoices.  The  purpose  of  this  record  is  to  account  for  the 
disposition  of  each  invoice  and  show  the  date  when  the  amount  therein 
called  for  is  constituted  a  charge  against  the  stores  fund. 

"Delivery  slips  acknowledging  deliveries  under  contract. — 
Supplies  purchased  under  contract  by  the  City  of  New  York  are  de- 
livered from  time  to  time  as  ordered  and  the  deliveries  are  covered  by 
vouchers  at  the  end  of  each  month  during  the  continuance  of  the 
contract.  Invoices  are  not  required  with  each  delivery.  Instead, 
delivery  slips  are  used  to  acknowledge  the  receipt  of  supplies,  final 
acceptance,  however,  being  subject  to  such  subsequent  inspection  or 
laboratory  tests  as  may  be  required  to  determine  quality.  These 
delivery  slips  are  treated  in  the  same  manner  as  invoices  so  far  as  the 
records  are  concerned,  and  the  details  thereon  entered  in  the  general 
purchasing  agent's  order  register  and  also  in  the  general  storekeeper's 
invoice  and  receiving  registers.  These  forms  are  supplied  to  the  con- 
tractor at  the  time  he  is  instructed  to  begin  deliveries  and  are  sug- 
gested as  a  means  to  avoid  the  confusion  at  present  experienced  from  the 
diversity  in  size  and  form  of  the  receipts  presented  by  contractors. 

"General  storekeeper's  receiving  register  for  supplies  pur- 
chased FOR  stock. — When  supplies  are  received  at  the  general  store- 
house the  details  of  the  invoice,  or  delivery  slip,  accompanying  the 
delivery  are  entered  in  a  receiving  register  which  contains  separate 
accounts   for   each   classified  item  of  supplies  carried  in   stock  in  the 


102  PURCHASING 

storehouse.  As  invoices  and  delivery  slips  are  received,  the  different 
items  of  supplies  therein  contained  are  posted  into  the  register  under 
the  item  to  which  they  belong,  one  or  more  pages  being  used  for 
recording  the  invoice  data  for  each  item  of  supplies. 

"General  storekeeper's  contract  register. — When  supplies 
delivered  under  contract  are  covered  by  regular  monthly  invoices,  the 
items  therein  contained  are  compared  with  the  entries  in  the  register  of 
invoices  taken  from  the  delivery  slips  accompanying  each  delivery  dur- 
ing the  month.  Entries  are  then  made  in  the  contract  register,  under 
the  proper  month  heading,  of  the  quantity  and  value  of  the  deliveries 
made  during  the  month  of  each  item  of  supplies  covered  by  the  contract. 
This  record  shows  in  condensed  form  the  progress  of  the  carrying  out 
of  the  contract  month  by  month  and  compares  deliveries  of  each  item 
of  supplies  with  the  estimated  quantity  of  the  item  contained  in  the 
contract. 

"Order  covering  the  return  of  rejected  supplies. — It  is  the 
duty  of  storekeepers  to  decide  whether  or  not  supplies  delivered  to  them 
by  the  vendor  comply  with  the  specifications  or  descriptions  under  which 
they  were  purchased.  It  often  happens,  however,  that  supplies  are 
accepted  which  later  prove  to  be  unsatisfactory  and  not  in  accordance 
with  the  terms  of  purchase.  In  such  case  the  storekeeper  shall  advise 
the  general  purchasing  agent  who  shall,  after  arranging  with  the  vendor, 
advise  the  storekeeper  to  return  the  rejected  supplies  therein  listed  to 
the  vendor.  The  storekeeper  shall  then  issue  an  order  for  their  return. 
The  order  form  is  provided  with  a  stub  counterpart,  which  is  retained  as 
a  record  by  the  storekeeper.  The  original  order  is  retained  bj'^  the  store- 
house foreman,  or  other  person  actually  returning  the  supplies,  as  a 
justification  for  their  return  and  to  account  for  their  absence  from  the 
bin,  locker,  or  other  storage  place. 

"The  use  of  such  a  formal  order  prevents  reckless  habits  in  the  return 
of  rejected  deliveries,  and  places  the  responsibility  for  the  rejection 
upon  the  storekeeper. 

"Delivery  form  covering  the  return  of  rejected  supplies. — 
In  returning  rejected  supplies  to  the  vendor  the  person  making  the 
actual  delivery  uses  a  delivery  form  upon  which  the  details  are  made  out 
in  triplicate  by  the  use  of  carbon  sheets.  The  first  section  is  retained 
by  the  person  making  the  delivery.  The  second  and  third  sections  are 
presented  to  the  vendor,  or  his  representative  who  received  the  delivery, 
one  of  which  sections  he  retains  and  the  other  he  signs  and  returns  to 
the  person  making  the  delivery,  who  hands  it  over  to  the  storekeeper 
as  evidence  that  actual  dehvery  has  been  made.  The  storekeeper's 
copy  is  used  as  a  basis  for  entries  in  the  receiving  register  showing  the 
return  of  the  supplies  and  to  prepare  a  credit  advice  slip  for  the  informa- 
tion of  the  general  purchasing  agent. 


DEPARTMENTAL  ORGANIZATION  103 

"Credit  advice  slip  for  rejected  supplies. — Immediately  after 
the  return  of  rejected  supplies  to  the  vendor,  the  storekeeper  shall 
advise  the  general  purchasing  agent,  so  that  a  credit  may  pass  through 
his  records  and  the  records  of  the  Department  of  Finance,  against  the 
original  order  and  invoice  carrying  the  rejected  supplies  as  a  charge 
against  the  receiving  storehouse,  or  the  Stores  Fund,  if  the  original 
order  emanated  from  the  general  storekeeper. 

"The  creation  of  a  general  stores  fund. — The  establishment  of  a 
general  storehouse  involves  the  creation  of  a  General  Stores  Fund. 
The  plan  involves  the  keeping  in  stock  in  the  general  storehouse  a  full 
month's  requirements,  with  another  full  month's  requirements  on 
order  at  the  first  of  each  month.  Little  difficulty  should  be  experienced 
in  thus  limiting  the  volume  of  supplies  kept  in  stock,  since  a  large  part 
of  the  supplies  required  during  the  year  will  be  contracted  for  at  one 
time,  and  monthly  orders  against  contracts  arranged  to  meet  require- 
ments. As  supplies  are  ordered  each  month  for  stock  they  are  paid  for 
upon  delivery  by  vouchers  drawn  by  the  general  purchasing  agent 
against  the  Stores  Fund.  As  fast  as  supplies  from  stock  are  delivered 
to  departments  they  constitute  a  charge  against  the  supply  appropria- 
tions, or  other  funds,  of  the  receiving  department  and  a  corresponding 
credit  to  Stores  Fund.  If  it  were  practicable  to  credit  Stores  Fund  each 
time  a  delivery  of  supplies  was  made  from  stock,  that  fund  would 
only  need  to  be  equal  to  the  money  value  of  one  month's  requirements. 
A  great  deal  of  unnecessary  work  can  be  saved,  however,  by  having 
the  debits  against  departmental  appropriations  and  other  funds,  and 
the  corresponding  credits  to  Stores  Fund  for  supplies  delivered  from 
stock,  pass  quarterly.  By  this  means  credits  to  a  departmental  budgets 
account,  due  to  transfers  of  supplies  to  the  general  storehouse,  will  be 
balanced  against  debits  to  the  same  account,  leaving  only  one  entry, 
either  debit  or  credit,  against  each  account  effected,  to  be  made  in 
the  books  of  the  Department  of  Finance.  For  this  reason  it  is  recom- 
mended that  a  Stores  Fund  be  created  sufficient  to  cover  the  cost 
of  supplies  purchased  for  general  storehouse  stock  for  a  three  months' 
period,  plus  the  small  amount  necessary  to  carry  general  storehouse 
purchases  through  the  time  required  to  adjust  the  accounts.  A  record 
should  therefore  be  maintained  by  the  general  storekeeper,  showing 
the  disposition  of  all  supplies  issued  from  stock  in  such  a  manner  that  a 
quarterly  statement  may  be  prepared. 

"Other  features  of  proposed  system. — The  proposed  general  store- 
house plan  thus  far  described  deals  with  every  feature  of  the  system 
necessary  to  stock  the  storehouse  with  supplies  for  distribution.  The 
balance  of  the  proposed  plan  deals  with  the  system  of  issuing  supplies 
from  storehouse  to  departments  upon  requisition  as  required,  of 
accounting  for  stock  on  hand  and  of  controlling  the  distribution  of 
supplies  issued." 


104  PURCHASING 

85.  The  ideal  purchasing  department. — The  author  beheves 
there  are  many  reasons  why  the  ideal  purchasing  department 
of  the  not  far  distant  future  will  be  in  the  form  of  a  separate 
company.  In  fact,  one  or  two  such  companies  are  already  organ- 
ized and  in  successful  operation — successful  in  the  saving  they 
effect  for  their  clients  no  less  than  in  the  profits  they  earn. 
These  companies  are  divided  into  four  classes,  as  follows: 

1.  Jobbers  agencies. 

2.  Foreign  agencies. 

3.  Consumers  agencies. 

4.  General  agencies. 

86.  Jobbers  agencies. — In  almost  every  line  of  trade  there  are 
companies  whose  business  it  is  to  make  purchases  for  jobbers, 
retailers  and  middlemen  only.  These  companies  are  sometimes 
called  "syndicate  buyers."  Most  of  these  companies  have  their 
headquarters  in  New  York,  Chicago  or  Pittsburg,  the  market 
centers,  and  act  as  resident  buyers  for  out-of-town  jobbers. 
The  client  paj^s  an  annual  fee  for  this  service  and  in  return  is 
saved  the  expense  of  maintaining  an  office  in  the  market  center. 
Such  buying  companies  are  not  only  usually  able  to  get  better 
discounts  from  the  manufacturer  than  the  jobber  could  obtain 
direct  but  as  they  are  located  in  the  market,  the  convenience  is 
usually  worth  the  fee.  One  of  the  best  features  of  the  buying 
syndicate  is  the  price  information  it  supplies  to  clients.  The 
greatest  talking  point  of  such  companies  is  that  by  combining 
the  purchases  of  many  small  jobbers  or  retailers,  each  client  will 
get  as  favorable  quantity  prices  as  though  each  was  a  very  large 
concern.  The  author  has  heard  it  said,  that  one  trouble  with 
buying  companies  of  this  sort  has  often  been  that  the  client 
has  not  received  the  benefit  of  the  full  quantity  discount  secured. 
In  other  words,  if  the  statements  of  some  jobbers  and  retailers 
are  to  be  believed,  such  companies  sometimes  try  to  get  a 
revenue  at  each  end  of  the  line— from  the  client  and  from  the 
manufacturer. 

The  author  has  also  been  told  that  another  trouble  has  been 
that  these  buying  companies  have  not  always  resisted  the  tempta- 
tion to  go  into  competition  with  their  own  clients  by  doing  a  job- 
bing business  on  the  side.  Again,  some  of  them  attempt  to  carry 
stocks  and  dehver  to  their  clients  out  of  their  own  stocks,  instead 
of  from  the  manufacturer.  In  other  words,  many  of  these  com- 
panies do  not,  in  practice,  carry  out  their  ideals. 


DEPARTMENTAL  ORGANIZATION  105 

Syndicate  buyers  are  not  in  favor  with  some  manufacturers 
for  the  reason  that  where  the  latter  tries  to  maintain  one  price 
to  the  "trade"  and  another  price  to  the  "consumer,"  these  buying 
companies,  it  is  said,  sometimes  demorahze  the  schedule  and  will 
not  adhere  to  it.  Since  the  modern  tendency  is  toward  direct 
deahng  between  the  manufacturer  and  the  consumer,  the  days  of 
the  jobber  are  numbered  and  likewise  the  days  of  the  buying 
concern  which  caters  to  the  jobber. 

87.  Foreign  agencies. — In  the  same  way  that  companies  of 
the  class  just  discussed  serve  domestic  jobbers,  so  do  foreign 
agents  serve  their  clients.  One  distinction  of  this  class,  however, 
is  that  the  lines  of  goods  dealt  in  are  likely  to  be  more  closely 
drawn.  The  foreign  agent  is  not  so  likely  to  buy  such  a  wide  range 
of  articles,  though  exceptions  exist.  Furthermore,  some  foreign 
agents  represent  middlemen,  some  represent  consumers  and 
some  represent  both.  These  agencies  serve  a  good  purpose 
and  will  multiply  in  number  as  our  foreign  trade  increases. 

88.  Consumers  agencies. — Very  few  companies  along  this 
line  have  been  organized  although  by  far  the  best  in  theory 
and  practice.  As  indicated,  they  buy  for  consumers  and  they 
have  several  decided  advantages. 

In  the  first  place,  they  obtain  the  same  discounts  from  the 
manufacturer  that  are  granted  to  the  jobber.  As  these  dis- 
counts vary  from  5  per  cent,  to  40  per  cent,  with  an  average  of 
say,  15  per  cent.,  the  consumer  is  saved  the  jobber's  profit,  except 
the  small  fee  to  which  the  buying  company  is  entitled.  This  fee 
amounts  to  about  5  per  cent.  It  may  be  asked  how  the  buying 
company  can  afford  to  do  business  more  cheaply  than  the  jobber. 
The  answer  is  that  the  buying  company  carries  no  stock,  has  no 
warehouse  and  no  selling  expense.  These  are  the  jobber's  big 
items,  and  the  consumer  must  pay  these  costs  to  the  jobber  if 
he  deals  with  him. 

In  the  second  place,  the  consumers'  company  is  enabled, 
by  reason  of  the  volume  of  its  business,  to  employ  expert  buyers 
for  each  line.  One  man  skilled  in  buying  machinery,  one  in 
buying  lumber,  and  one  in  buying  chemical  supplies,  etc.,  may  be 
included,  whereas  the  purchasing  agent  for  the  consumer  cannot 
be  skilled  in  all  branches.  Hence  a  buying  company  will  be  more 
efficient  than  a  private  purchasing  agent.  At  least,  such  a 
company  can  give  valuable  assistance  to  the  regular  purchasing 
agent. 

Companies  which  make  buying  a  specialty  find  a  large  class 


106  PURCHASING 

of  clients  among  those  consumers  who  cannot  afford  to  employ 
a  purchasing  agent  regularly.  Another  class  of  clients  is  that 
which,  by  reason  of  the  nature  of  the  business,  would  need  a 
purchasing  agent  only  during  a  portion  of  the  year.  Still 
another  class  of  clients  is  that  which  buys  irregularly  and  in- 
termittently. 

89.  Miscellaneous  agencies. — In  addition  to  the  forms  of 
buying  companies  mentioned  above,  we  find  exporters,  importers, 
special  agents,  resident  buyers  and  general  buyers.  Each  fulfills 
a  certain  function  but  need  only  be  mentioned,  as  they  are 
foreign  to  the  subject  in  hand. 

90.  Summary. — The  purchasing  department  should  be  ana- 
lyzed to  see  that  it  conforms  to  the  size  and  nature  of  the  business 
it  is  intended  to  serve.  Any  system  should  be  elastic  and  its 
expense  made  to  vary  with  the  business.  A  municipal  purchas- 
ing department  will  require  certain  features  not  necessary  in  a 
private  corporation  and  a  study  of  the  proposed  system  for  New 
York  City  will  be  of  service  in  this  connection.  Purchasing  com- 
panies should  be  scrutinized  to  see  that  they  work  solely  for  the 
interests  of  their  clients,  and  it  should  be  remembered  that  those 
catering  only  to  the  consumer  are  founded  on  the  principles 
best  calculated  to  effect  savings. 


CHAPTER  X 
FORMS 

91.  Advantage  in  the  use  of  forms. — The  advantage  to  be 
derived  by  the  use  of  forms  is  to  be  found  in  the  saving  of  time 
and  money  which  they  produce  and  the  mistakes  which  they 
prevent.  The  time  required  to  follow  a  blank  form  is  much  less 
than  would  be  required  to  write  out  the  matter  in  full.  Not 
only  do  forms  save  much  time  for  the  clerical  force,  but  also  for 
the  principals,  since  they  permit  transferral  to  the  clerical  force 
of  work  which  they  otherwise  would  have  to  assume  themselves. 
Guided  by  forms  devised  to  take  care  of  the  usual  transactions, 
the  clerk  can  keep  a  large  amount  of  routine  going,  and  only  the 
special  features  need  go  to  his  superior.  With  certain  blanks  to 
be  followed,  the  memory  need  not  be  relied  on  to  so  great  an 
extent,  hence  errors  are  reduced  in  number.  The  policy  of  any 
company  can  be  carried  into  effect  uniformly  through  a  large 
organization  by  the  use  of  standard  forms  for  prescribed  condi- 
tions in  a  way  which  would  be  impossible  if  each  employee  were 
left  to  devise  his  own  letters,  orders,  etc.  Were  it  not  for  the  use 
of  forms,  large  organizations  would  be  impossible,  at  least  on  the 
basis  of  cheap  clerical  help. 

92.  Choice  of  language  in  preparing  forms. — Great  care  should 
be  exercised  in  the  preparation  of  form  letters  or  any  other  forms. 
Mistakes,  delays,  disputes  and  even  legal  difficulties  may  be 
produced  by  the  failure  to  make  the  intent  clear.  For  example, 
the  use  of  adjectives  and  adverbs  should  be  discouraged. 
Many  specifications  state  that  the  goods  should  be  delivered 
"promptly,"  or  that  the  work  shall  be  done  in  a  "proper" 
manner.  These  expressions  are  vague,  since  the  meaning  is  not 
exact.  It  is  just  as  bad  to  specify  exactly  how  a  thing  shall  be 
done  and  then  expect  a  guarantee  as  to  the  result.  We  cannot 
hold  another  responsible  for  our  own  mistakes,  and  the  specific 
direction  may  have  been  the  cause  why  the  seller  was  not  able  to 
produce  the  result  which  he  has  guaranteed. 

107 


108  PURCHASING 

Another  reason  for  the  use  of  care  in  preparing  forms  lies  in  the 
fact  that  the  impression  one  creates  on  the  recipient  is  of  great 
importance.  This,  of  course,  is  equally  true  of  all  correspond- 
ence. A  good  letter  will  sometimes  make  as  good  an  impression 
as  the  writer  would  make  in  a  personal  interview.  It  may  at 
least  form  the  entering  wedge.  An  unbusinesslike  letter  either 
goes  into  the  waste  basket  or  into  a  dead  file.  All  letters  or  forms 
should  be  couched  in  simple,  straightforward  language.  Short 
letters  and  short  forms  are  to  be  preferred  in  every  case.  Stock 
phrases  have  been  decried  but  they  are  better  than  fanciful  ones. 
This  may  not  be  true  from  the  seller's  standpoint,  but  it  cer- 
tainly is  from  the  buyer's. 

93.  Objections  to  the  use  of  forms. — Two  important  objections 
have  been  raised  to  the  use  of  forms.  The  first  is  that  they  do  not 
command  much  attention  from  those  who  receive  them,  because 
of  their  stereotyped  and  uninteresting  appearance.  This  objec- 
tion had  been  raised  to  form  letters  particularly.  This  is  often 
true,  but  the  trouble  is  due  to  the  poor  design  of  the  form  and  not 
to  the  principle.  A  form  should  fit  the  business  and,  what  is  more 
to  the  point,  it  should  fit  the  case;  else  it  should  not  be  used.  It 
should  also  be  so  prepared  that  it  does  not  look  like  a  form  propo- 
sition any  more  than  a  bronze  statue  should  show  the  marks  of 
the  mold  from  which  it  is  cast.  The  form  should  where  possible 
stay  on  the  stenographer's  desk  merely  for  use  as  a  guide  in 
dictation.  The  letter  should  be  typed  as  though  dictated  m 
full. 

The  second  objection  usually  urged  against  forms  is  that 
emphasis  is  not  put  on  the  one  thing  that  is  most  important. 
This  of  course  can  be  remedied  only  by  mechanical  means,  that 
is  to  say,  by  using  a  greater  number  of  forms  to  fit  different 
cases,  by  varying  the  size  of  type  and  spacing  or  by  using  accom- 
panying letters  which  point  out  the  essentials. 

94.  Object  of  form  illustrations. — The  forms  given  in  the 
following  pages  are  not  intended  to  be  used  blindly  but  they  may 
be  of  assistance  in  designing  others  which  will  better  fit  a  given 
business.  While  the  forms  illustrated  are  not  of  uniform  size  and 
shape,  in  actual  practice  they  should  be  as  nearly  so  as  possible. 
Elegance  of  style  and  in  some  cases  grammar  has  been  sacrificed 
in  order  to  keep  within  the  bounds  of  the  phraseology  best  un- 
derstood by  those  most  likely  to  be  concerned.  The  forms  repre- 
sent standard  practice. 


FORMS 


109 


95.  Form  letters.- 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 

New  York, ,  191 


Messrs  . 


Attention  of  Mr 

Gentlemen: 

Kindly  wire  us,  immediately  on  receipt  of  this  letter,  your 

best  quotation  on , 

as  per  the  enclosed  blueprint  (or  list),  F.O.B.  your  works,  shipment 

to  be  made  within from  receipt  of  order. 

Yours  truly, 


End. 


THE  PURCHASING  COMPANY, 
By 


(Title) 


Fig.  a. — Request  for  quotation  by  wire. 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 

New  York, ,  191 


Messrs. 


Attention  of  Mr. 


Gentlemen: 

Kindly  have  your  representative  call  on  .  .  . 
prepared  to  quote  us  on  enclosed  blueprint  (or  list). 
Yours  truly, 


End. 


THE  PURCHASING  COMPANY, 
By 


(Title) 


Fig.  B. — Request  for  quotation  in  person. 


110  PURCHASING 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 

New  York, ,  191 . 


To. 


(Name  of  seller) 
(Address  of  seller) 

Attention  Mr. 


(Title  and  department) 

Gentlemen: 

Kindly  give  us  your  best  quotation  on  the  following  items: 


State  the  price  per F.O.B 

(lb.,  yd.,  etc.)  (point  of  delivery) 

State  date  you  will  guarantee  shipment  (delivery). 

State  terms. 

Bids  Must  Be  in  Our  Hands  by 


THE  PURCHASING  COMPANY, 
By 


(Title) 


Fig.  C. — Request  for  quotation  by  mail. 


FORMS  111 

THE  PURCHASING  COMPANY 

0123  BROADWAY, 

New  York, ,  191 .  . 

To 

(Name  of  seller) 

Attention  Mr 


(Address) 

(Title  and  department) 

Gentlemen: 

Kindly  return  this  form  to  us  with  your  best  quotations 
on  the  following  items.     State  price  per    

(lb.,  yd.,  etc.) 

F.O.B Bids    must    be    in    our    hands 

(point  of  delivery) 

by 

Signed  


We  hereby  agree  to  furnish  the  following  items  at  the  prices  and 
under  the  other  conditions  named. 


We   will   guarantee   to   begin   shipment   by    and 

complete  by   Our  terms  are 

This  quotation  will  expire   but  your  acceptance, 

if  received  on  or  before ,  will,  together  with  this 

proposal,  form  a  contract  binding  on  both  parties. 


Signed 

(Name  of  seller^ 


By 

(Title) 


Fig.  D. — Request  for  quotation  on  return  blank. 


112 


PURCHASING 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 


New  York, ,  191 . 


Messrs. 


Attention  Mr 

Gentlemen: 

Your  letter  of received,  regard- 
ing your  quotation  on  We  have 

to  inform  you  that  you  were  unsuccessful  in  securing  the  order  for 
this  material,  but  we  thank  you  for  your  figure  and  we  trust  you  may 
be  more  fortunate  on  your  next  quotation. 

Yours  truly, 

THE  PURCHASING  COMPANY, 


By 


(Title) 


Fig.  E. — Rejection  of  quotation. 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 

New  York, ,  191 . 


Messrs. 


Attention  Mr 

Gentlemen: 

Your  letter  of  received,  regard- 
ing your  quotation  on 

We  have  to  inform  you  that  we  are  not  ready  to  place  the 
order  for  this  material.  We  suggest  that  you  again  communicate 
with  us  about 

Yours  truly, 

THE  PURCHASING  COMPANY, 


By 


(Title) 


Fig.  F. — Quotations  in  process. 


FORMS  113 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 


New  York, ,  191 . 

Messrs 


Attention  Mr 

Gentlemen: 

Your  letter  of received  regard- 
ing   your    quotation    on We 

have  to  inform  you  that  we  have  decided  not  to  place  the  order  for 
this  material,  due  to  a  change  in  our  plans.  We  thank  you,  however, 
for  your  figure  and  we  will  advise  you  when  we  are  in  the  market  again. 

Yours  truly, 

THE  PURCHASING  COMPANY, 


By 

(Title) 


Fig.  G. — Unused  quotation. 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 


New  York, ,  191 

Messrs 


Attention  Mr 

Gentlemen: 

In  answer  to  your  favor  of  the > 

would  say  we  are  not  in  the  market  for  the  material  referred  to  in 
your  letter. 

Thanking  you  for  advising  us  in  the  matter,  we  remain. 

Yours  truly, 

THE  PURCHASING  COMPANY, 


By 

(Title) 


Fig.  H. — Rejection  of  unsolicited  quotation. 


114  PURCHASING 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 

New  York, ,  191 . 

Mr.  or  Messrs 


Dear  Sir  or  Gentlemen: 

We  are  in  receipt  of  your  letter  of 

and  regret  that  we  are  not  in  a  position  at  the  present  time  to  avail 
ourselves  of  your  services.  We  will  be  glad  to  bear  you  in  mind 
and  advise  you,  should  these  circumstances  become  altered. 

Yours  truly, 

THE  PURCHASING  COMPANY, 


By 

(Title) 


Fig.  I. — Rejection  of  service. 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 


New  York, ,  191 

Messrs 


Attention  Mr 

Gentlemen: 

In    answer   to   your   letter   of   

would  say  we  are  unable  to  accommodate  you  with  the  material 
referred  to. 

Regretting  our  inability  to  oblige  you,  we  beg  to  remain. 

Yours  truly, 

THE  PURCHASING  COMPANY, 


By 

(Title) 


Fig.  J. — Refusal  to  quote. 


FORMS  115 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 


New  York, ,  191 .  . 

Messrs 

Attention  of  Mr 

(Address) 


(Title  and  department) 

Gentlemen  : 

Please    refer   to    our   order    No ,    dated 

,  and  note  that  shipment  was  promised 

for 

Please  give  us  an  immediate  report  on  the  progress  you  have 
made  with  this  order. 

Yours  truly, 

THE  PURCHASING  COMPANY, 
By 


(Title) 


Fig.  K. — Follow-up  letter  before  shipment. 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 

New  York, ,  191 


Messrs. 


(Address) 

Attention  Mr 

(Title  and  department) 

Gentlemen  : 

Please  send  us,  at  once.  Bill  of  Lading  for  goods  shipped 
under  our  order  No ,  dated 

As  we  are  in  need  of  the  material,  will  you  put  a  tracer  on 
this  shipment  and  advise  us  of  the  report  which  you  receive  from 
the  railroad  company. 

Yours  truly, 

THE  PURCHASING  COMPANY, 
By 


(Title) 


Fig.  L. — Follow-up  letter  requesting  B/L, 


116  PURCHASING 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 


New  York, ,  191 . 

Messrs 


Attention  Mr 

(Address) 


(Title  and  department) 

Gentlemen: 

We  wrote  you  on regarding  our 

order    No ,    dated     , 

asking  you  to  put  a  tracer  on  the  shipment.     Please  reply  to  our 

letter,  giving  us  the  latest  information. 

Yours  truly, 

THE  PURCHASING  COMPANY, 


By 

(Title) 


Fig.   M. — Follow-up  letter  to  go  after  shipment. 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 


New  York, ,  191 .  . 

Railroad  Co., 


Attention  of  Mr 

(Address)  (Freight  Agent) 

Gentlemen: 

On   ,  the   

Company    shipped     ,     Car   No 

(initials) 
consigned  to  us  via   ,  at   

(routing) 

We  are  in  a  great  hurry  for  this  car  and  would  ask  you  kindly  to 
trace  the  same  and  give  us  your  report. 
Yours  truly, 

THE  PURCHASING  COMPANY, 
By 


(Title) 


FiQ.  N.— Follow-up  letter  to  Railroad  Co. 


FORMS 


117 


96  Requisitions. — 


THE  PURCHASING  CO. 

0123  BROADWAY, 
New  York  City. 


Inter-office 

Requisition   for  Material 

No 


General  Purchasing  Agent: 

Please  furnish   us  with   the  following  and   charge  to  ( — ) 
account : 


Number 
required 


Article 


Size  or  weight 


Other  specifications 


Ship  via 

(State  whether  mail,  express,  local  freight  or  carload  freight  and  routing) 

Consign  to   

(Give  exact  address) 

Send  B/L  to 

(Give  name  of  job  and  exact  address) 

Material  needed 

(Give  date  needed  at  destination) 
Special  information 

(Insert  any  special  information  such  as  terms,  etc.) 

Signed 

(Space  below  this  line  to  be  reserved  for  General  Purchasing  Agent's  office) 

Please  obtain   quotation   on  the  material  called  for  in   above 
requisition,  with  the  following  modifications: 

Signed  

General  Purchasing  Agent 

Fig.  a. — General  form,  for  material. 


118 


PURCHASING 


THE  PURCHASING  CO. 

0123  BROADWAY, 
New  York  City. 


Inter-office 
Requisition  for  Labor 
No 


General  Purchasing  Agent: 

Kindly  send  us  the  following  men : 


Number 
required 


Position  to  be  filled  (that 

is,  supt.  foreman,  rigger, 

carpenter,  etc.) 


Rate  of 
wages 


General  character  of 
men  wanted 


Send  men  via to 

(State  routing  and  name  job) 

Dates  needed 

Transportation    

(State  whether  to  be  paid  or  not) 

Remarks   

(State  duties  required  of  men,  hours  worked,  name  of 

man  who  will  be  in  direct  charge  of  job  in  question, 
any  special  men  preferred,  if  any,  etc.) 

Signed  

(Space  below  to  be  reserved  for  General  Purchasing  Agent's  office) 

Please  send  the  men  called  for  above  with  the  following  modifi- 
cations: 

Signed 

General  Purchasing  Agent 
Fig.  B. — General  form,  for  labor. 


FORMS 


119 


TO  PURCHASING  AGENT 


Factory  Requisition 
for  Supplies 


No. 


Date ,  19] . 

The  following  is  needed  for  account  of 

Shop  Order  No 


Quantity 

Description 

Date 
ordered 

From 

Pur.    order    No. 

Memorandum  for  Purchasing  Agent 
only 

Sign  here 


Fig.  C. — Special  factory  form. 


120 


PURCHASING 


REQUISITION 

This  requisition  must  be  accompanied  by  bills  in  Duplicate 
for  all  extra  work  finished  to  date. 


Contract 


191. 


Me.ssrs. 


Gentlemen: 

On  the  above  date  our  contract  amounts  to  $. 
and  we  have  received  extra  acceptances  amounting  to  $. 

$. 
deduct  for  credits  which  have  been  accepted  $. 

Total  $. 

The  actual  value  of  contract  to  date  is  $. 

Less per  cent,  to  be  retained  as  per  contract  $ . 


makes  amount  upon  which  payment  can  be  asked 
We  have  received  to  date  payments  amounting  to 

which  leaves  a  balance  now  due  us  of 
for  which  amount  we  hereby  make  requisition. 
Yours  truly, 


Approved  for  $ 

The  sum  of  $ ig 

Allowed. 

(Member  of  firm) 


This  requisition  must  be  returned 
before or  it  can- 
not be  acted  on  for  one  month. 
If  you  do  not  wish  to  make  requisi- 
tion, please  notify  us  by  return 
mail. 


Fig.  D. — Contractor's  form,  requisition  for  payment. 


FORMS 


121 


REQUISITION— ORIGINAL 

City  op  New  York 


No. 


Fund Charge  Account  No 191 .  . 

To  the  General  Purchasing  Agent. 

Sir: 

You  are  requested  to  procure  and  forward  to 


the  under-mentioned  articles  with  the  invoices  thereof: 

Quantity 

Articles 

On 
hand 
and 
due 

Monthly 
con- 
sump- 
tion 

For 

what 
purpose 

Quantity 
or  weight 

Approx. 
value 

Order 
No. 



I  hereby  certify  that  there  are 
sufficient  funds  appropriated 
and  unexpended  to  pay  the  es- 
timated amount  of  this  requisi- 
tion, viz: 


I  hereby  certify  that  the  arti- 
cles above  specified  are  neces- 
sary for  use  of  this  department 
and  are  to  be  used  solely  for  the 
benefit  of  the  City  of  New  York. 


Fig.  E. — Special  form,  designed  for  City  of  New  York. 


122  PURCHASING 

97.  Tabulation  of  bids.— 


THE  PURCHASING  COMPANY 

BIDS  ON  MATERIAL 

Article 

Description 

Bids  Closed          .        .                

Name  of  bidder 

Price  per 

Total 
price 

Size, 
Weight 

Terms 
F.O.B. 

Shipment 
Delivery 

Job Approx.  quantity 

Order  No To Authorized  by Placed  by 

Reason 

Job Approx.  quantity 

Order  No To Authorized  by 

Reason    

.  .  Placed  by 

Job Approx.  quantity 

Order  No To Authorized  by Placed  by 

Reason 

" 

Fig.  a. — General  form. 


FORMS 


123 


CITY  OF  NEW  YORK 

ABSTRACT  OF  PROPOSALS  TO  FURNISH  SUPPLIES 


Bid  No 

Requisition  No. 

Order  No 

Date  of  order  . . 
With  whom  .  .  . 


Bids  closed 


Quantity 

Description 

Price 
per.  .  . 
del'd. 

Price 
per.  .  . 
del'd. 

Price 
per.  .  . 
del'd. 

Price 
per.  .  . 
del'd. 

Price 
per.  .  . 
del'd. 

Price 
per.  .  . 
del'd. 

Fig.  B. — Form  proposed  for  New  York  City. 


124  PURCHASING 

98.  Price  and  catalogue  index  cards.— 


1 

Date 

Letter 
No. 

Name     Address 

Catalogue 

Prices 

Remarks 

No. 

Page 

Kind 

List 

Disc. 

Net 

Fig.  a. — General  form  of  price  card. 


Article 

Description 

Date 

From 

Per 

List 

Disc. 

Net 

Size 

Remarks 

1 

Fig.  B. — Factory  form  price  card. 


FORMS 


125 


Name 


File  No. 


Address 


Subject 

Fig.  C— Catalogue  Index  Card— By  Names. 


Subject 


Name 


File  No. 


Address 


Fig.  D.— Catalogue  Index  Card— By  Subjects. 


126  PURCHASING 

99.  Orders  and  acceptances. — 


ORIGINAL 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 

New  York, 


ORDER 


No 


To. 


Number  of  order  and 
destination  of  goods 
must  appear  on  your 
invoice. 

Invoices  must  be  ren- 
dered in  duplicate, 
accompanied  by  Bill 
of  Lading  or  Shipping 
Memo. 


Please  Furnish  Us  with  the  Articles  Named  below: 
Deliver  to 


Signed,  THE  PURCHASING  COMPANY, 


By 


(title) 


Fig.  a. — General  blank  form  of  order. 


FORMS 


127 


THE  PURCHASING  COMPANY 

0123  BROADWAY, 

Order  No 

New  York, 191 , 


To. 


We  hereby  authorize  you  to  supply  us  with  the  following : 


Quantity 


Size 


Description 


Price 


Date  of  shipniRTit                                          

Consign  to 

via 

(give 

exact  address) 

Routing 

(mail 

express 

local  or 

carload  freight) 

Send  B/L  to  . 

.  .  and  invoices 

IN 

Duplicate  to 

Special  condit 

ons 

Signed,  THE  PURCHASING  COMPANY, 
By 


(title) 


Fig.  B. — General  form  of  order,  detailed. 


128  PURCHASING 


ATLAS  WORKS 

Order  No 

Req.  No New  York,  N.  Y., 191 . 

To 


Please  furnish  us  the  material  specified  below,  sending 
DUPLICATE  INVOICES  and  BILL  OF  LADING  for  each  lot  of 
goods  shipped  on  day  Shipment  is  made.  Mark  Invoice,  Bill  of 
Lading  and  each  package  with  above  order  and  requisition  numbers. 

Shipment  Promised       Voucher  No. 


Ship  via 


Acknowledge  receipt  of  order,  giving  number  of  same. 

If  you  cannot  ship  at  once,  state  when  you  can  begin  making  dehv- 
eries  and  how  long  it  will  take  to  complete  each  item. 

Advise  what  your  charge  will  be  on  any  items  not  priced. 

The  acceptance  of  this  order  guarantees  us  lowest  prices,  which  must 
not  be  liigher  than  last  quoted  nor  charged  without  first  consulting 

us. 

No  charge  will  be  allowed  for  cartage  or  packages. 

Car  service  will  be  deducted  for  all  cars  that  reach  us  without  ship- 
ping advice  or  bill. 

Do  not  deduct  freight  allowance  from  your  invoices.     We  will  make 
all  freight  deductions,  sending  you  notice  of  same. 

ATLAS  WORKS, 


Purchasing  Agent 


Fig.  C. — Special  shop  form  of  order. 


FORMS 


129 


ORIGINAL   ORDER  TO   BE   ATTACHED   TO   THE 
VOUCHER  TRANSMITTED  TO  COMPTROLLER 

CITY  OF  NEW  YORK— DEPARTMENT  OF  PURCHASE 


To 

Indicate  this  order 
number  on  all  bills. 

No 

Please  furnish  and  deliver  to 

Date 

Requisition  No 

the  following  articles  on  the  conditions  stated 
on  other  side: 

Fund 

Charge  Acct 

Item 

Quantity       Unit 

Articles 

Price 
per  unit 

A  ™     ,    t        Terms  of 
A"""^"*        payment 

i 

Certificates  of  the  necessity  of  the  above  supplies  and  of  the  suffi- 
ciency of  the  appropriation  therefor  were  placed  on  file  in  this 
department  before  the  expenditure  was  incurred. 


I  hereby  certify  that  the  articles  above  specified  have  been  received 
and  that  the  quantity  and  quality  thereof  have  been  verified,  with  tlie 
exceptions  noted. 


This  Original  Order  Must  Be  Returned  by  Vendor  with  the 
Goods. 

It  is  then  to  be  signed  by  person  receiving  goods  and  transmitted  with 
invoice  at  once. 


Fig.  D. — Order  form  proposed  for  New  York  City. 


130 


PURCHASING 


THE  SELLING  COMPANY 


New  York, ,191.. 

ACCEPTANCE 

The  Purchasing  Company, 
0123  Broadway, 

New  York  City. 

Attention  of  Mr 

Gentlemen: 

We    acknowledge    with    thanks    receipt    of    your   favor    of 
( ),  covering  j^our  order  No.    ( ),   for 


(. 


.), 


in  accordance  with  your  drawing  No.  ( ),  and  as  per 

our  quotation  of  ( ). 

Price   to   be    ($ ),    F.O.B.    our   works    with 

freight  allowed  to    ( ).     Shipment  to  be  con- 
signed to  the  Purchasing  Company  ( ),  N.  Y. 

We    agree    to    make     shipment    in    ( )    weeks. 

Terms  of  payment: 

This  order  is  accepted  subject  to   delays   bej'ond   our   control. 

Yours  very  truly, 

THE  SELLING  COMPANY, 

By 


If  above  is  not  in  accordance  with  your  understanding,  kindly   advise 
us  at  once. 


Fig.  E. — Typical  acceptance. 


FORMS  131 

100.  Typical  clauses  for  use  in  writing  orders. — The  following  typi- 
cal clauses  are  to  be  used  merely  as  a  guide.  One  copy  should  be  on 
the  principal's  desk  and  one  on  the  stenographer's.  They  serve  two 
main  purposes:  First,  by  scanning  them,  no  essential  will  be  omitted 
by  the  principal  in  dictating  the  order;  second,  the  stenographer  can 
write  the  order  if  merely  given  the  clause  numbers  and  sub-letters  with 
the  data  necessary  to  complete  the  sense.  Accuracy  and  a  great  saving 
in  time  will  result. 

1.  Number  ot  requisition. 

2.  Number  of  bid  sheet. 

3.  Number  of  order. 

4.  Date  of  order. 

5.  Name  of  buyer  and  address. 

6.  Name  of  seller  and  address. 

7.  Authority  for  seller  to  proceed. 

(a)  Please  furnish  us  with  the  following  items. 

(b)  You  are  hereby  authorized  to  supply  us  with  the  following 
items  as  per  your  proposal  No ,  dated 

(c)  You  are  hereby  authorized  to  supply  us  with  all  the  items  men- 
tioned in  your  proposal  No ,  dated , 

at  the  prices  and  under  all  the  conditions  and  terms  mentioned 
therein. 

(d)  We    hereby    accept    your    proposal    No ,    dated 

,    which,    together    with   this    order,    will 

form  a  contract  binding  on  both  parties.     Kindly  proceed  at 
once. 

8.  Description  of  material. 

(a)  All  of  the  material  called  for  on  attached  list. 

(b)  All  of  the  material  shown  or  indicated  on  the  following  attached 

drawings  approved  by (state  numbers  or  dates, 

or  other  means  of  identifying  the  drawings). 

(c)  All  of  the  labor  and  materials  called  for  in  the  attached  blue- 
prints and  specifications,  attached  hereto  and  made  a  part 
hereof,  which  may  be  identified  as  follows  (state  numbers, 
dates,  letters,  or  other  means  of  identification) : 

9.  Dates  of  shipment  (or  delivery). 

(a)  It  is  understood  that  you  will  commence  shipment  (or  delivery) 

on  or  before 191 .  . ,  and  complete  shipment 

(or  delivery)  on  or  before 191 . . . 

(b)  It  is  understood  that  you  will  make  shipment  (or  delivery)  in 
accordance  with  the  following  schedule. 

(c)  TIME  IS  OF  THE  ESSENCE  OF  THIS  ORDER  and  it  is 
understood  and  agreed  that  failure  on  your  part  to  make  ship- 
ment (or  delivery)  as  stated  above  will  render  this  order  null 
and  void  and  that  in  such  event  no  liability  for  payment,  for 


132  PURCHASING 

material  partly  manufactured  by  the  seller,  will  attach  to  the 
Puri3hasing  Company. 

(d)  TIME  IS  OF  THE  ESSENCE  OF  THIS  ORDER  and  it  is 
understood  and  agreed  that  the  Purchasing  Company  may 

buy  from  a  third  party  any  parts  the    

Company  may  fail  to  ship  (or  deliver)  on  or  before  the  dates 
mentioned  above,  charging  any  excess  which  may  be  paid  for 
the  said  parts,  over  and  above  the  prices  named  herein,  to  the 

account  of    Company,   and 

the  Purchasing  Company  will  not  be  obligated  to  pay  for,  nor 

receive,  the  said  parts  from  the  

Company,  even  though  partly  manufactured.  In  case  the 
Purchasing  Company  shall  exercise  the  option  just  stated,  it 

shall  give  notice  in  writing  to  this  eftcct  to  the 

Company  which  will  not  be  relieved  from  completing  the  rest 
of  the  order. 

(e)  TIME  IS  OF  THE  ESSENCE  OF  THIS  ORDER  and  it  is 
understood    and    agreed    that    failure    on    the    part    of    the 

Company   to  ship    (deliver)   as 

per  above  schedule  will  cause  damage  to  the  Purchasing  Com- 
pany to  the  extent  of  $ per  calendar  day,  and  ship- 
ment (delivery)  before  the  dates  mentioned  above  will  be  of 
value  or  benefit  to  the  Purchasing  Company  to  the  extent  of 

$ per   calendar   day.     Therefore,    the    Purchasing 

Company  shall  be  allowed  to  deduct  from  any  amounts  due, 

or  to  become    due,    the    Company 

its  damage  by  reason  of  delay,  not  to  exceed  a  sum  total  of 

$ and,  on  the  other  hand,  the  Purchasing  Company 

agrees  to  pay,  in  addition  to  the  prices  named  elsewhere,  an 
amount  equal  to  the  benefit  caused  by  anticipation  in  dates 
of  shipment,  not  to  exceed  the  sum  of  $ 

(f)  TIME  IS  OF  THE  ESSENCE  OF  THIS  ORDER  and  it  is 
understood  that  delay  in  shipment  (or  delivery)  wiU  cause 
damage  to  the  Purchasing  Company,  whereas  quick  shipment 
(or  delivery)  will  be  of  value  to  the  Purchasing  Company. 
It   is   therefore   agreed   that   the   prices   to   be   paid   to   the 

Company  shall  be  contingent 

on  the  dates  of  shipment  in  accordance  with  the  following 
schedule. 

(g)  It  is  understood  that  all  dates  of  shipment  (or  delivery)  shall 
be  changed  and  extended  an  amount  equal  to  the  time  lost  by 

the    Company   by  reason  of 

strikes,  lockouts,  fires,  accidents  or  any  other  acts  beyond  the 
control  of  the Company,  pro- 
vided only  application  for  extension  of  time  be  made  in  writing 


FORMS  133 

within days  of  the  beginning  of  the  occurrence  of 

such  cause  of  delay.     It  is  further  agreed  that  if  such  cause 

of  delay  is  such  as  to  render  the 

Company    unable    to    make    shipment    (or    delivery)    within 

days  of  the  schedule  above  (or  below),  then,  in 

that  case,  this  order  shall  become  null  and  void  as  regards  any 
unshipped  (undelivered)  portion. 

10.  Terms. 

(a)  Net  cash  30  days  after  date  of  B/L  (or  delivery). 

(b)  1  per  cent,  ten  days — net  30  days  after  date  B/L  (or  delivery). 

(c)  lyi  per  cent,  ten  days — net  30  days  after  date  B/L  (or  delivery). 

(d)  2  per  cent,  ten  days — net  30  days  after  date  B/L  (or  delivery). 

(e)  5  per  cent,  ten  days — net  30  days  after  date  B/L  (or  delivery). 

(f)  2  per  cent.  30  days — net  60  days  after  date  B/L  (or  delivery). 

(g)  Cash  on  receipt  of  B/L  (or  delivery), 
(h)  Freight  cash. 

(i)    Cash  in  advance, 
(j)    Usual, 
(k)  Special. 

11.  Special  clauses. 

(a)  Sub-letting. — This  order,  neither  as  a  whole  nor  in  any  part, 

may  be  sub-let  by  the    Company 

without  written  consent  from  the  Purchasing  Company.  The 
prices  named  herein  are  agreed  to  in  consideration  of  the 
reliance  placed  by  the  Purchasing  Company  in  the  ability  of  the 

Company,  and  sub-letting  of  any 

part  or  the  wholeoi  this  order  without  consent,  as  above  stated, 
wiU  render  it  null  and  void. 

(b)  Damage. — It  is  understood  that  the 

Company  will  protect  and  save  harmless  the  Purchasing 
Company  from  all  claims  arising  out  of,  and  defend  all  suits 
for  damages  in  connection  with,  accidents  to  its  employees, 
or  to  the  public,  or  to  property  caused  by  or  in  connection  with 

the  work  done  by    the    

Company  in  carrying  out  this  order. 

(c)  Permits. — It  is  understood  that  the 

Company  will  comply  with  all  State  (Federal)  (Municipal) 
Laws,  and  secure  all  necessary  permits  required  thereby  at  its 
own  expense. 

(d)  Insurance. — It  is  understood  and  agreed  that  the 

Company  will  cover  the  work  done 

by  it,  under  this  order,  with  employers'  liability  (pubUc  liability) 
(fire)  (marine)  insurance  in  form,  amount,  and  with  a  company 
satisfactory  to  the  Purchasing  Company. 


134  PURCHASING 

(e)  Inspection. — It  is  understood  and  agreed  that  all  material 
shipped  (delivered)  under  this  order  shall  be  subject  to  inspec- 
tion by at  the  mill  (or  other  point 

agreed),  reasonable  facilities  being  granted  to 

for  such  inspection.     All  material  rejected  by 

shall  be  removed  promptly  by  the 

Company  at  its  own  expense. 

(f)  Agent's  Clause. — It  is  understood  and  agreed  that  the 
Purchasing  Company,  in  placing  this  order,   is  acting  solely 

as  agent  for  the  Company, 

against  whom  all  charges  and  claims  are  to  be  made  by  the 

Company.     All  invoices  are 

to  be  sent  to  the  Purchasing  Company  for  approval,  and 
the  Purchasing  Company  will  then  transmit  them  to  the 
Company  for  paj^ment. 

(g)  Payment. — All    invoices    are    to    be    rendered    in    duplicate 

(triplicate)    and   sent   to    

(state  address). 

Invoices  for  labor  and  materials  furnished  during  the  preceding 

month  to  be  made  out  as  of  the day  of  each 

month.     Payment  of  same,   if  correct,   will  be  made  within 

days  after  receipt  of  invoices, per 

cent,  being  retained  to  insure  completion,  until  the  final  pay- 
ment,  which  will  be   made   within    days   of 

acceptance  of  all  work  under  this  order. 

12.  Confirmation. 

(a)  Confirming  verbal  (telephone)  order  given  your 

Mr ,  on (date). 

(b)  This  order  is  given  in  acceptance  of  your  proposal  No , 

dated ,  said  proposal  and  this  order 

to  form  a  contract  binding  on  both  parties. 

13.  Execution. 

(a)  The  Purchasing  Company. 

By 

(title) 

(b)  Accepted: 

The  Selling  Company. 

By 

(.title) 


FORMS 


135 


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Order  given 
to 

Date  of 
order 

Order 
number 

Bid-sheet 
number 

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136  PURCHASING 


102.  Contracts.— 


ARTICLES  OF  AGREEMENT,  between 
and 


of  the  first  part 


of  the  second  part 
The  part.  ...  of  the  first  part,  in  consideration  of 


covenant  and  agree  to 

The  part ....  of  the  second  part,  in  consideration  of . 


covenant  and  agree 


IN  WITNESS  WHEREOF,  the  parties  hereunto  have  set 

their  hands  and  seals  the day  of 

in  the  year  one  thousand  nine  hundred  and 


Sealed  and  delivered  in  the  presence  of 


Fig.  a. — General  blank  form  of  contract. 


FORMS 


137 


AGREEMENT  made  this day  of  

in  the  year  one  thousand  nine  hundred  and 

BETWEEN 

part ....  of  the  first  part  and 

part ....  of  the  second  part,  in  manner  following :     The  said  part    .  . 

of  the  first  part,  in  consideration  of  the  sum  of 

to  be  fully  paid  as  hereinafter  mentioned,  hereby  agree  to  sell  unto 
the  said  part ....  of  the  second  part,  ALL 


AND  THE  SAID  part.  ...  of  the  second  part  hereby  agree  to  pur- 
chase said  premises  at  the  said  consideration  of 

Dollars,  and  to  pay  the  same  as  follows: 

Dollars 

on  the  execution  of  this  agreement  the  receipt  of  which  is  hereby 

acknowledged 

AND  THE  SAID  part ....  of  the  first  part,  on  receiving  such  pay- 
ment        at 

the  time  and  in  the  manner  above  mentioned  shall,  at own 

proper  costs  and  expenses  execute,  acknowledge  and  deliver,  or  cause 
to  be  executed,  acknowledged  and  delivered  to  the  said  part .... 

of  the  second  part,   a  good  and  sufficient  deed  for  the 

conveying  and  assuring  to  them  the  fee  simple 

of  the  said  premises  free  from  all  encumbrance  (which  deed  shall  be 
a  full  covenant  warranty  deed). 


Fig.  B. — Contract  to  buy  property. 


138  PURCHASING 


It  being  understood  and  agreed  that  the  instruments  referred  to  in 
within  contract,  to  be  executed  and  delivered,  shall  conform  to  the 
requirements  of  Chapter  (— ),  Law  of  (— ),  relating  to  Deeds,  Bonds  and 
Mortgages,  so  far  as  the  same  is  applicable  thereto,  and  which  deed 

shall  be  delivered  on  the day  of 

,   191..,  at   o'clock, M., 

at 

AND  IT  IS  UNDERSTOOD  that  the  stipulations  aforesaid  are  to 
apply  to  and  bind  the  heirs,  executors,  administrators  and  assigns 
of  the  respective  parties. 

IN  WITNESS  WHEREOF,  the  parties  to  these  presents  have 
hereunto  set  their  hands  and  seals  the  day  and  year  first  above 
written.     Sealed  and  delivered  in  the  presence  of 

STATE  OF 


County  of . 


On  this    day  of   in 

the  year  one  thousand  nine  hundred  and before  me 

personally  came  and  appeared 

to  me  known  and  known  to  me  to  be the 

person .  .    described  in  and  who  executed    the  foregoing  instrument 

and acknowledged  to  me  that he 

executed  the  same. 

Fig.  B. — Contract  to  buy  propertj\     (Concluded.) 


FORMS  139 


ARTICLES  OF  AGREEMENT,  made  this day  of 

nineteen  hundred 


between 

part ....  of  the  first  part  and 

part ....  of  the  second  part. 

WITNESSETH,  as  follows:  The  part.  . .  of  the  first  part,  in  con- 
sideration of  One  Dollar  paid  by  the  part.  ...  of  the  second  part, 
the  receipt  of  which  by  the  part ....  of  the  first  part  is  hereby  ac- 
itnowledged,  and  also  in  consideration  of  the  conveyance  by  the 
part ....  of  the  second  part  of  the  real  property  hereinafter  men- 
tioned, hereby  agree...  to  grant  and  convey  to  the  part....  of 
the  second  part,  at  a  valuation  for  the  purpose  of  this  contract  of 


ALL 


AND  the  part .  .  ^  of  the  second  part,  in  consideration  of  One  Dollar 
paid  by  the  part.  ...  of  the  first  part,  the  receipt  of  which  by  the 
part....  of  the  second  part  is  hereby  acknowledged,  and  also  m 
consideration  of  the  conveyance  by  the  part.  ...  of  the  first  part  of 
the  real  property  hereinbefore  mentioned,  agree  .  .  .to  grant  and  con- 
vey to  the  part.  ...  of  the  first  part,  at  a  consideration  for  the  pur- 
poses of  this  contract  of   Dollars 

ALL 

Said  premises  which  are  to  be  conveyed  by  the  part.  ...  of  the  first 
part  are  to  be  conveyed  subject  to  the  following  encumbrances 

Said  premises  which  are  to  be  conveyed  by  the  part....  of  the 
second  part  are  to  be  conveyed  subject  to  the  following  incumbrances: 

The  difference  between  the  values  of  the  respective  premises,  over 
and  above  incumbrances,  shall  be  deemed  for  the  purpose  of  this 

,    ,     ,  Dollars, 

contract  to  be    

in  favor  of  the  part ....  of  the part,  and  the  said  part .  . 

of  the part  agree  .  .  .to  pay  the  same  as  follows: 

Each  of  the  parties  to  these  presents  hereby  agrees  to  convey 
the  property  above  described  as  sold  by  that  party,  free  from  all 
incumbrances,  except  as  above  specified,  and  to  execute,  acknowledge 
and  deliver,  or  cause  to  be  executed,  acknowledged  and  delivered. 


Fig    C.— Contract  to  exchange  property. 


I 


140 


PURCHASING 


to  the  other  party,  or  to  the  assigns  of  the  other  party  (the  deed 
to  be  drawn  in  each  case  at  the  cost  of  the  vendor),  a  proper  war- 
ranty deed  containing  full  covenants,  duly  executed  and  acknowl- 
edged, to  convey  and  assure  to  the  grantees  an  absolute  fee  of  said 
premises. 

Said  deeds  shall  be  delivered  and  exchanged  on the 

day  of   at   o'clock, 

M.,  at  the  office  of    

No in  the 

Each  of  the  parties  hereto  assumes  the  risk  of  loss  or  damages 
by  fire  prior  to  the  completion  of  this  contra^it  on  the  premises  owned 
by  them  respectively.  The  rents  of  the  said  premises,  insurance 
premiums  and  interest  on  mortgage,  if  any,  shall  be  adjusted,  appor- 
tioned and  allowed  up  to  the  day  of  taking  title. 

AND  IT  IS  UNDERSTOOD,  that  the  stipulations  aforesaid  are 
to  apply  to  and  bind  the  heirs,  executors,  administrators  and  assigns 
of  the  respective  parties. 

IN  WITNESS  WHEREOF,  the  parties  to  these  presents  have 
hereunto  set  their  hands  and  seals,  the  day  and  year  first  above 
written. 


Sealed  and  delivered  in  the  presence  of 


(Seal) 
(Seal) 


STATE  OF  NEW  YORK 

Countv  of 


On  this    day   of in   the 

year  one  thousand  nine  hundred  and   before 

me,  the  undersigned,  personally  came  and  appeared 

to   me   personally   known    and 

known  to  me  to  be   the  individual .... 

described  in  and  who  executed  the  foregoing  instrument  and 

and  acknowledged  to  me  that he executed 

the  same. 


Fig.  C. — ^Contract  to  exchange  property.     {Concluded.) 


FORMS 


141 


THIS  AGREEMENT,  Between 

as  Landlord,  and   

as  Tenant,  WITNESSETH:  That  the  said  Landlord  LET  unto  the 
said  Tenant,  and  said  Tenant  Hire  from  the  said  Landlord 

for  the  term   of 

from  the day  of 191 .  .  to  bo 

occupied  as 

and  not  otherwise,  at  the  yearly  rent  of Dollars, 

payable 

upon  the  conditions  and  Covenants  following: 

First. — That  the  Tenant ....  shall  pay  the  rent as 

aforesaid,  as  the  same  shall  fall  due. 

Second. — That  the  Tenant ....  shall  take  good  care  of  the  House 

and  its  fixtures,  and  suffer  no  waste;  and  shall  at own 

cost  and  expense,  make  and  do  all  repairs  required  to  the  plumbing 
work  and  pipes,  furnace,  range,  and  fixtures  belonging  thereto,  and 

shall  keep  the pipes  and  the  connections  with  the 

main,  free  from  ice  and  other  obstructions  at 

own  expense.  And  the  tenant  ....  shall  keep  the  sewer  connections 
free  from  obstructions  to  the  satisfaction  of  the  municipal  and  police 
authorities,  and  not  call  upon  the  party  of  the  first  part,  for  any 

disbursements  or  outlay  during  the  hereby  granted  term; 

and  at  the  end  or  other  expiration  of  the  term 

shall  deliver  up  the  demised  premises  in  good  order  and  condition, 
damages  by  the  elements  excepted. 

That  the  tenant  shall  pay  the water  tax  imposed  on  the 

hereby  demised  building  in  each  and  every  year  during  the  hereby 
granted  term. 

That  no  improvements  or  alterations  shall  be  made  in  or  to  the 
hereby  demised  building,  without  the  consent  of  the  landlord  in 
writing.  All  improvements  made  by  the  tenant  to  belong  to  the 
landlord,  at  the  expiration  of  the  hereby  granted  lease. 

Third. — That  the  tenant  ....  shall  further  and  promptly  execute 
and  fulfill  all  the  ordinances  of  the  City  Corporation  applicable  to 


Fig.  D. — Contract  to  let. 


142  PURCHASING 


said  premises;  and  all  orders  and  requirements  imposed  by  the 
Board  of  Health  and  the  Police  Department  for  the  correction,  pre- 
vention and  abatement  of  nuisances  or  other  grievances  in,  upon 
or  connected  with  said  premises  during  said  term,  or  other  grievances 
at own  expense. 

Fourth.— That  the  tenant shall  not  assign  this  Agreement, 

or  underlet  the  premises,  or  any  part  thereof  or  make  any  altera- 
tions in  the  Building  or  Premises  without  the  Landlord's  consent, 
in  writing;  or  occupy  or  permit  or  suffer  the  same  to  be  occupied 
for  any  business  or  purpose  deemed  extra-hazardous  on  account  of 
fire. 

Fifth. — That  the  tenant ....  shall  in  the  case  of  fire,  give  immedi- 
ate notice  thereof  to  the  Landlord,  who  shall  thereupon  cause  the 
damage  to  be  repaired  forthwith.  But  if  the  premises  be  so  damaged 
that  the  Landlord  shall  decide  to  re-build,  the  term  shall  cease,  and 
the  accrued  rent  be  paid  up  to  the  time  of  the  fire. 

Sixth. — That  in  case  of  default  in  any  of  the  Covenants,  the 
Landlord  may  resume  possession  of  the  premises  and  re-let  the  same 
for  the  remainder  of  the  term,  at  the  best  rent  that  he  can  obtain, 
for  account  of  the  Tenant.  .  .  .,  who  will  nuike  good  any  deficiency. 

Seventh. — That  the  landlord  shall  have  liberty,  three  months 
prior  to  the  expiration  of  the  term  hereby  granted,  to  put  in  some 
conspicuous  part  of  the  exterior  of  said  premises,  a  notice  "For 
Sale,"  or  "To  Let,"  and  applicants  shall  be  admitted  at  reasonable 
hours  of  the  day  to  view  them  until  rented. 

And or  agents  shall  also  be  per- 
mitted at  any  time  during  the  term,  to  visit  and  examine  the  premises 
at  any  reasonable  hour  of  the  day. 

The  premises  being  rented  at  the  request  of 

as  Surety,  the  latter  agrees  in  con- 
sideration of  the  said  letting,   that  the  Tenant.  .  .  .    shall  pay  the 

rent,  and  perform  the  Agreement  on part,  above  written. 

IN  WITNESS  WHEREOF,  the  parties  to  this  agreement,   have 

hereunto  interchangeably  set  their  hands  and  seals  this 

day  of 191 .  . 

Sealed  and  delivered  in  presence  of 

Fig.  D. — Contract  to  let.     (Concluded.) 


FORMS 


143 


THIS  AGREEMENT,  made  the day  of 

in  the  year  one  thousand  nine  hundred  and by  and  between 

party  of  the  first  part  (hereinafter  designated  the  Contractor.  .)  and 

party  of  the  second  part  (hereinafter  designated  tlie  Owner..), 
WITNESSETH  that  the  Contractor.  .,  in  consideration  of  the  agree- 
ments herein  made  by  the  Owner..,  agree  with  the  Owner.,  as 
follows : 

Section  1.— The  Contractor.  .  shall  and  will  provide  all  the  materials 
and  perform  all  the  work  for  the 

as"  shown  on  'the  drawings  and  described  in  the  specifications  pre- 
,  ,  .  .   Architect,  which 

drawings  and  specifications  are  identified  by  the  signatures  of  the 
parties  hereto,  and  become  hereby  a  part  of  this  contract. 

Section  2  —It  is  understood  and  agreed  by  and  between  the  parties 
hereto  that  the  work  included  in  this  contract  is  to  be  done  under 
the  direction  of  the  said  Architect,  and  that  his  decision  as  to  the 
true  construction  and  meaning  of  the  drawings  and  specifications 
shall  be  final.  It  is  also  understood  and  agreed  by  and  between  the 
parties  hereto  that  such  additional  drawings  and  explanations  as 
may  be  necessary  to  detail  and  illustrate  the  work  to  be  done  are  to 
be  furnished  by  said  Architect,  and  they  agree  to  conform  to  and  abide 
by  the  same  so  far  as  they  may  be  consistent  with  the  purpose  and 
intent   of   the   original   drawings   and   specifications   referred   to   in 

^'ft'is  Lther  understood  and  agreed  by  the  parties  hereto  that 
any  and  all  drawings  and  specifications  prepared  for  the  purposes 
7thl  contract  by  the  said  Architect  are  and  ---J- f  J/^^; 
and  that  all  charges  for  the  use  of  the  same,  and  for  the  services 
of  said  Architect,  are  to  be  paid  by  the  said  Owner.  . . 

Section  3.-NO  alterations  shall  be  made  in  the  work  except  upon 
wr^ten  order  of  the  Architect;  the  amount  to  be  paid  by  the  Owner  .^ 
rallowed  by  the  Contractor.  .  by  virtue  of  such  alteration  to  be  stated 
L  said  order  Should  the  Owner.  .  and  Contractor.  .  not  agree  as  to 
amint  to  be  paid  or  allowed,  the  work  shall  go  on  under  the  order 
reTred  above  and  in  case  of  failure  to  agree,  the  determination 
of  said  amouni  shall  be  referred  to  arbitration  as  provided  for  in 
Section  12  of  this  contract. 


Pig,  E.— Building  agreement— lump  sum. 


144  PURCHASING 


Section  4. — The  Contractor.  .  shall  provide  sufficient,  safe  and 
proper  facilities  at  all  times  for  the  inspection  of  the  work  by  the 
Architect  of  his  authorized  representatives,  shall,  within  twenty-four 
hours  after  receiving  written  notice  from  the  Architect  to  that  effect, 
proceed  to  remove  from  the  grounds  or  buildings  all  materials  con- 
demned by  him,  whether  worked  or  unworked,  and  to  take  down  all 
portions  of  the  work  which  the  Architect  shall  by  like  written  notice 
condemn  as  unsound  or  improper,  or  as  in  any  way  failing  to  conform 
to  the  drawings  and  specifications  and  shall  make  good  all  work 
damaged  or  destroyed  thereby. 

Section  5. — Should  the  Contractor.  .  at  any  time  refuse  or  neglect 
to  supply  a  sufficiency  of  properly  skilled  workmen,  or  of  materials 
of  the  proper  quality,  or  fail  in  any  respect  to  prosecute  the  work 
with  promptness  and  diligence,  or  fail  in  the  performance  of  any  of 
the  agreements  herein  contained,  such  refusal,  neglect  or  failure 
being  certified  by  the  Architect,  the  Owner.  .  shall  be  at  liberty, 
after  three  day's  written  notice  to  the  Contractor .  . ,  to  provide  any 
such  labor  or  materials,  and  to  deduct  the  cost  thereof  from  any 
money  then  due  or  thereafter  to  become  due  to  the  Contractor, 
under  this  contract;  and  if  the  Architect  shall  certify  that  such  refusal, 
neglect  or  failure  is  sufficient  ground  for  such  action,  the  Owner.  . 
shall  also  be  at  liberty  to  terminate  the  employment  of  the  Con- 
tractor. .  for  the  said  work  and  to  enter  upon  the  premises  and  take 
possession,  for  the  purpose  of  completing  the  work  included  under 
this  contract,  of  all  materials,  tools  and  appliances  thereon,  and  to 
employ  any  other  person  or  persons  to  finish  the  work,  and  to  provide 
the  materials  therefor;  and  in  case  of  such  discontinuance  of  the 
employment  of  the  Contractor.  .,  shall  not  be  en- 
titled to  receive  any  further  payment  under  this  contract  until  the 
said  work  shall  be  wholly  finished,  at  which  time,  if  the  unpaid  balance 
of  the  amount  to  be  paid  under  this  contract  shall  exceed  the  expense 
incurred  by  the  Owner.  .  in  finishing  the  work,  such  excess  shall  be 
paid  by  the  Owner.  .,  to  the  Contractor.  . ;  but  if  such  expense  shall 
exceed  such  unpaid  balance,  the  Contractor.  .  shall  pay  the  differ- 
ence to  the  Owner .  .  The  expense  incurred  by  the  Owner .  .  as  herein 
provided,  either  for  furnishing  materials  or  for  finishing  the  work, 
and  any  damage  incurred  through  such  default,  shall  be  audited  and 
certified  by  the  Architect,  whose  certificate  thereof  shall  be  con- 
clusive upon  the  parties. 

Section  6. — The  Contractor.  .  shall  complete  the  several  portions 
and  the  whole  of  the  work  comprehended  in  this   Agreement  by 


Fici.  E. — Building  agreement — lump  sum.     (Continued.) 


FORMS  145 


Section  7. — Should  the  Contractor.,  be  delayed  in  the  prosecu- 
tion or  completion  of  the  work  by  the  act,  neglect  or  default  of  the 
Owner.  .,  of  the  Architect,  or  any  other  contractor  employed  by  the 
Owner.  .  upon  the  work,  or  by  any  damage  caused  by  fire  or  other 
casualty  for  which  the  Contractor.  .  not  responsible,  or  by  combined 
action  of  workmen  in  no  wise  caused  by  or  resulting  from  default 
or  collusion  on  the  part  of  the  Contractor.  .,  then  the  time  herein 
fixed  for  the  completion  of  the  work  shall  be  extended  for  a  period 
equivalent  to  the  time  lost  by  reason  of  any  or  all  the  causes  aforesaid, 
which  extended  period  shall  be  determined  and  fixed  by  the  Architect; 
but  no  allowance  shall  be  made  unless  a  claim  therefor  is  presented 
in  writing  to  the  Architect  within  forty-eight  hours  of  the  occurrence 
of  such  delay: 

Sections. — The  Owner.  .  agree.  .  to  provide  all  labor  and  materials 
essential  to  the  conduct  of  this  work  not  included  in  this  contract 
in  such  manner  as  not  to  delay  its  progress  and  in  the  event  of  failure 

so  to  do,  thereby  causing  loss  to  the  Contractor .  . ,  agree .  .  that 

will  reimburse  the  Contractor.  .  for  such  loss:  and  the  Contractor.  . 

agree.  .  that  if   shall  delay  the  progress  of  the  work  so 

as  to  cause  loss  for  which  the  Owner.  .    shall  become  liable,  then 

shall  reimburse  the  Owner.  .  for  such  loss.     Should  the 

Owner.  .  and  Contractor.  .  fail  to  agree  as  to  the  amount  of  loss 
comprehended  in  this  Section,  the  determination  of  the  amount  shall 
be  referred  to  arbitration  as  provided  in  Section  12  of  this  contract. 

Section  9. — It  is  hereby  mutually  agreed  between  the  parties  here- 
to that  the  sum  to  be  paid  by  the  Owner.  .  to  the  Contractor.  .  for 

said  work  and  materials  shall  be 

subject  to  additions  and  deductions  as  hereinbefore  provided,  and 
that  such  sum  shall  be  paid  by  the  Owner .  .  to  the  Contractor .  . , 
in  current  funds,  and  only  upon  certificates  of  the  Architect,  as 
follows : 


The  final  payment  shall  be  made  within   days 

after  the  completion  of  the  work  included  in  this  contract,  and  all 
payments  shall  be  due  when  certificates  for  the  same  are  issued.  If 
at  any  time  there  shall  be  evidence  of  any  lien .  .  or  claim .  .  for  which, 
if  established,  the  Owner .  .  of  the  said  premises  might  become  liable, 
and  which  is  chargeable  to  the  Contractor.  .,  the  Owner.  .  shall  have 


Fig.  E. — Building  agreement — lump  sum.     {Continued.) 


146  PURCHASING 


the  right  to  retain  out  of  any  payment  then  due  or  thereafter  to 

become  due  an  amount  sufficient  to  completely  indemnify 

against  such  lien .  .  or  claim .  .  Should  there  prove  to  be  any  such 
claim .  .  after  all  payments  are  made,  the  Contractor .  .  shall  refund 
to  the  Owner.  .  all  moneys  that  the  latter  may  be  compelled  to  pay 
in  discharging  any  lien .  .  on  said  premises  made  obligatory  in  conse- 
quence of  the  Contractor .  .  default. 

Section  10. — It  is  further  mutually  agreed  between  the  parties 
hereto  that  no  certificate  given  or  payment  made  under  this  contract) 
except  the  final  certificate  or  final  payment,  shall  be  conclusive  evi- 
dence of  the  performance  of  this  contract,  either  wholly  or  in  part, 
and  that  no  payment  shall  be  construed  to  be  an  acceptance  of 
defective  work  or  improper  materials. 

Section  11. — The  Owner.  .  shall  during  the  progress  of  the  work 
maintain  insurance  on  the  same  against  loss  or  damage  bj^  fire, .... 

the  policies  to  cover  all  work  incorporated  in  the  building,  and  all 
materials  for  the  same  in  or  about  the  premises,  and  to  be  made 
payable  to  the  parties  hereto,  as  their  interest  may  appear. 

Section  12. — In  case  the  Owner.  .  and  Contractor.  .  fail  to  agree 
in  relation  to  matters  of  payment,  allowance  or  loss  referred  to  in 
Sections  3  or  8  of  this  contract,  or  should  either  of  them  dissent  from 
the  decision  of  the  Architect  referred  to  in  Section  7  of  this  contract, 
which  dissent  shall  have  been  filed  in  writing  with  the  Architect 
within  ten  days  of  the  announcement  of  such  decision,  then  the 
matter  shall  be  referred  to  a  Board  of  Arbitration  to  consist  of  one 
person  selected  by  the  Owner.  .,  and  one  person  selected  by  the 
Contractor.  .,  these  two  to  select  a  third.  The  decision  of  any  two 
of  this  Board  shall  be  final  and  binding  on  both  parties  hereto.  Each 
party  hereto  shall  pay  one-half  of  the  expense  of  such  reference. 


The  said  parties  for  themselves,  their  heirs,  successors,  executors, 
administrators  and  assigns,  do  hereby  agree  to  the  full  performance 
of  the  covenants  herein  contained. 

IN  WITNESS  WHEREOF,  the  parties  to  these  presents  have 
hereunto  set  their  hands  and  seals,  the  day  and  year  first  above 
written. 


In  presence  of 
In  presence  of 


Fig.  E. — Building  agreement — lump  sum.     (Concluded.) 


FORMS  147 


THIS  AGREEMENT,  made  this day  of 

191 .. ,  by  and  between    Company,  a 

corporation  organized  and  existing  under  the  laws  of  the  State  of 

party  of  the  first  part,  hereinafter  called  the 

"Company,"  and  the Company,  a  corporation  organized 

and  existing  under  the  laws  of  the  State  of ,  party  of  the 

second  part,  hereinafter  called  the  "Contractor," 

WHEREAS,  the  Company  desires  to  have  constructed 


in  accordance  with  plans  and  specifications  prepared  by  the  engineer 

of ,  identified  by  the  signatures 

of  the  parties  hereto  and  made  a  part  hereof  and 

WHEREAS,  the  Contractor  is  desirous  of  performing  this  work 
under  the  terms  and  conditions  hereinafter  outlined, 

NOW,  THEREFOR,  the  parties  to  this  agreement,  each  in  con- 
sideration of  the  covenants  and  agreements  on  the  part  of  the  other 
herein  contained,  do  hereby  covenant  and  agree  as  follows: 

1. — The  Contractor  shall  act  as  agent  for  the  Company  in  exe- 
cuting the  work  as  outlined  herein,  in  accordance  with  plans  and  speci- 
fications above  referred  to. 

2. — The  Company  will 

It  is  further  understood  and  agreed  that  the  work  to  be  done  by  the 
Company  will  be  done  without  interference  with  the  work  herein 
agreed  to  be  done  by  the  Contractor. 

3.— In  consideration  of  the  faithful  performance  of  the  covenants 
and  agreements  made  by  the  Contractor,  the  Company  hereby 
covenants  and  agrees  to  pay,  or  cause  to  be  paid  to  the  Contractor, 
an  amount  equal  to  the  "cost  of  the  work,"  as  hereinafter  defined, 

plus  a  fee  of   Dollars, 

($ ),  subject  to  the  conditions  set  forth  in  Article 

No.  8. 

4. — It  is  understood  and  agreed  by  the  parties  hereto  that  the 
term  "cost  of  the  work"  shall  include  all  expenses  of  whatsoever 
nature  incurred  by  the  Contractor  in  connection  with  this  work, 
excepting  cost  of  maintenance  of  Contractor's  main  office  in  New 
York.     The  said  costs  would  include : 

(a)  All  labor  and  materials,  both  for  temporary  and  permanent 
work,  including  camp  and  other  temporary  buildings. 


Fig.  7. — Building  agreement — cost  plus  a  fee. 


148 


PURCHASING 


(b)  The  cost  of  transportation  of  all  plant  (including  that  furnished 
by  the  Contractor)  to  and  from  the  site  of  the  work,  the  said  costs 
to  include  freight,  trucking  and  the  loading  and  unloading  of  plant 
at  the  Contractor's  Yard  and  at  the  site  of  the  work. 

(c)  All  necessary  repairs  to  plant  while  on  the  work. 

(d)  The  transportation  and  traveling  expenses  of  all  men  to  and 
from  the  site  of  the  work,  including  the  traveling  expenses  of  officers 
or  engineers  of  the  Contractor  when  their  services  are  required  on 
the  work. 

(e)  All  expenses  of  superintendents,  including  time-keepers  and 
clerks,  but  not  including  any  charge  for  services  rendered  by  the 
officers  or  engineers  of  the  Contractor  from  its  New  York  office. 

(f)  The  cost  of  the  installation,  maintenance  and  dismantling  of 
plant,  pipe  lines,  etc.,  at  the  site  of  the  work. 

(g)  The  cost  of  all  supplies  including  any  equipment  not  furnished 
by  the  Contractor  as  hereinafter  mentioned,  wire  and  Manila 
rope,  blocks  and  tackle,  hand  tools,  piping,  steam  and  air  hose,  fuel, 
oil,  waste,  caisson  shafts,  ladders,  etc.,  any  salvage  on  same  at  the 
completion  of  the  work  to  be  credited  to  the  cost  of  the  work. 

(h)  The  cost  of  running  the  camp  in  excess  of  receipts  from  same. 

(i)  The  expenses  of  the  local  office,  on  the  work,  of  the  Contractor, 
including  telegrams,  telephone,  express,  postage,  etc. 

(j)  The  cost  of  the  necessary  liability  insurance  to  protect  both 
the  Company  and  the  Contractor  from  loss  by  reason  of  damages 
to,  or  injuries  sustained  by  the  public  or  workmen  while  engaged  on 
the  work,  and  costs  of  all  damages  in  excess  of  liability  insurance. 

(k)  The  cost  of  any  legal  expenses  and  the  rental  of  any  property 
necessary  for  the  prosecution  of  the  work. 

5. — The  Contractor  will  furnish  without  charge  other  than  the 
fee  hereinbefore  provided  for,  its  business  system,  its  engineering 
skill  and  experience,  its  patent  methods  and  patent  rights  in  its 
appliances,  its  skilled  organization,  and  generally,  its  ability  to  equip 
the  work  with  efficient  plant,  and  to  organize  the  job  with  men 
experienced  in  this  class  of  work,  and  to  construct,  expeditiously 
and  successfully,  work  of  this  nature.  The  Contractor  will  also 
furnish  without  additional  charge,  the  heavier  items  of  plant  required 
in  connection  with  the  work — such  plant  consisting  of  air  com- 
pressors, air  locks,  receiver  and  cooler,  derricks,  hoisting  engines, 
concrete  mixer,  caisson  buckets  and  boilers  (State  specific  items). 


Fig.  7. — Building  agreement — cost  plus  a  fee.     (Continued.) 


FORMS 


149 


6. — It  is  understood  and  agreed  that  the  Contractor  shall  pur- 
chase, for  the  account  of  the  Company,  all  supplies  and  materials, 
etc.,  required  in  connection  with  the  work,  except  such  as  the  Com- 
pany may  wish  to  purchase  itself,  shall  duly  approve  bills  for  same 
for  payment,  and  shall  then  forward  them  to  the  Company  for  pay- 
ment, and  the  Company  agrees  that  it  will  make  payment  for  such 
bills  direct  to  the  individuals  or  firms  from  which  the  materials  or 
supplies  were  purchased.  Expenditures  made  by  the  Contractor 
on  account  of  the  work  shall  be  reimbursed  as  follows:  On  the 
first  (1st)  and  fifteenth  (15th)  days  of  each  month,  the  Contractor 
shall  furnish  to  the  Company  a  statement  of  the  expenditures  made 
by  it  during  the  preceding  two  weeks'  period  on  account  of  the  work, 
rendering  proper  vouchers  therefor,  and  the  Company  agrees  that 
within  five  (5)  days  of  the  receipt  of  such  statement  from  the  Con- 
tractor, it  will  pay  the  Contractor  the  amount  of  such  statements. 
The  Company  further  agrees  that  between  the  first  (1st)  and  fifth 
(5th)  days  of  each  month  it  will  pay  or  cause  to  be  paid  to  the  Con- 
tractor on  account  of  the  fee  herein  agreed  upon per 

cent,  of  the  fee  mentioned  in  Article  No.  3  (until per 

cent,  of  the  fee  has  been  paid  to  the  Contractor),  for  the  work  done 
by  it  during  the  preceding  month,  and  will  pa}'  or  cause  to  be  paid 
within  thirty  (30)  daj^s  after  the  completion  of  the  work,  the  rest 
of  the  fee,  if  any,  due  to  the  Contractor. 

7. — The  Contractor  shall  afford  sufficient  facilities  to  the  author- 
ized representatives  of  the  Company  for  the  inspection  of  said  work 
and  materials. 

8. — The  Contractor  guarantees  to  the  extent  of  this  fee,  that 
the  cost  of  the  work,  including  this  fee,  shall  not  exceed  the  sum  of 

$ ,  but  the  parties  hereto  agree  in  the  event  of  the 

cost,  including  the  fee  to  the  Contractor,  being  less  than  $ , 

that  any  sum  which  may  be  saved  on  such  cost,  under  the  said  sum 

of  $ ,  shall  be  divided  equally  between  the  parties 

hereto;  and  the  parties  hereto  further  agree  in  the  event  of  the  cost, 

including  the   fee    of  $ to   the    Contractor,   being 

over  $ ,   the   Contractor  shall  pay    one-half    of 

said   cost  in  excess  of  such  sum   of  $ ,   until  the 

amount  which  it  may  be  called  upon  to  pay  shall  equal  $ 

when  further  payments  on  the  part  of  the  Contractor,  on  account 
of  such  extra  cost,  shall  cease.  Payments  of  extra  fee  to  the  Contractor 
by  the  Company,  or  rebate  in  fee  by  the  Contractor  to  the  Com- 
pany, as  provided  in  this  clause,  to  be  made  at  the  time  of  final  pay- 
ment referred  to  in  Article  No.  6. 


Fig.  7. — Building  agreement — cost  plus  a  fee.     {Continued.) 


150 


PURCHASING 


9.— Should  the  Contractor  at  any  time  during  the  progress  of 
the  work  refuse  or  neglect  to  supply  a  sufficiency  of  materials  of 
proper  quality,  or  of  competent  workmen,  or  cause  any  unreason- 
able neglect  or  suspension  of  work,  or  fail  or  refuse  to  comply  with 
any  of  the  articles  of  this  agreement,  the  Company  shall  be  at  liberty, 
after  giving  ten  (10)  days'  written  notice  to  the  Contractor,  to 
terminate  this  contract,  and  in  that  event,  the  Company  shall  pay 
to  the  Contractor  the  cost  of  the  work  as  defined  in  Paragraph 
No.  4,  plus  such  portion  of  the  fee  mentioned  in  Article  No.  3  as  may 
be  due,  as  provided  in  Article  No.  6,  up  to  the  date  on  which  the  ten 
(10)  days'  notice,  heretofore  described,  expires.  In  case  the  con- 
tract is  terminated  before  completion,  Article  No.  8  will  be  disre- 
garded by  both  parties  in  adjusting  final  payment.  Upon  such 
payment  being  made,  by  the  Company  to  the  Contractor,  this  con- 
tract shall  thereupon  be  terminated. 

10. — The  Contractor  agrees  to  take  out  and  maintain  at  all 
times  during  the  course  of  said  work  liability  insurance  in  amounts 
to  be  approved  by  the  Company,  to  protect  said  Company  and  Con- 
tractor from  loss  by  reason  of  damage  to,  or  injuries  sustained  by, 
the  public  or  workmen  while  engaged  on  the  work. 

11. — The  conditions  of  this  contract  shall  be  binding  on  the  suc- 
cessors and  assigns  of  the  parties  hereto,  but  no  assignment  hereof 
shall  be  made  nor  sub-contract  let  by  the  Contractor  without  the 
written  consent  of  the  Company. 

12. — The  Company  shall  furnish  the  Contractor  free  of  charge 
such  permits  as  may  be  required  for  the   prosecution  of  the  work. 

IN  WITNESS  WHEREOF,  the  said  parties  have  hereunto  set  their 
hands  and  seals  as  of  the  day  and  year  first  above  written. 


I 


(Company) 


Witness : 


By 


Witness: 


By 


(Contractor) 


Fig.  7. — Building  agreement — cost  plus  a  fee.     (Concluded.) 


FORMS 


151 


THIS   AGREEMENT,   made   this    day   of 

,  191 .  . ,  by  and  between  The 

Company,  a  corporation  organized  and  existing  under  the  laws  of 
the  State  of  ,  party  of  the  first  part,  herein- 
after called  the  "Company, "  and   The 

Company,  a  corporation  organized  and  existing  under  the  laws  of 

the    State   of    ,  party   of   the   second   part, 

hereinafter  called  the  "Contractor," 

WITNESSETH 

WHEREAS,  the  Company  desires  to  have  constructed 


in  accordance  with  plans  and  specifications  prepared  by  the 

Engineer  of  the 

identified  by  the  signatures  of  the  parties  hereto  and  made  a  part 
hereof,  and 

WHEREAS,  the  Contractor  is  desirous  of  performing  this  work 
under  the  terms  and  conditions  hereinafter  outlined. 

NOW,  THEREFORE,  the  parties  to  this  agreement,  each  in  con- 
sideration of  the  covenants  and  agreements  on  the  part  of  the  other 
herein  contained,  do  hereby  covenant  and  agree  as  follows: 

1. — The  Contractor  shall  act  as  agent  for  the  Company  in  exe- 
cuting the  work  as  outlined  herein,  in  accordance  with  plans  and 
specifications  above  referred  to. 


2. — The  Company  will 


It  is  further  understood  and  agreed  that  the  said  work  shall  be  done 
by  the  Company  without  interference  with  the  work  herein  agreed 
to  be  done  by  the  Contractor. 

3. — In  consideration  of  the  faithful  performance  of  the  covenants 
and  agreements  made  by  the  Contractor,  the  Company  hereby 
covenants  and  agrees  to  pay,  or  cause  to  be  paid  to  the  Contractor, 
an  amount  equal  to  the  "cost  of  the  work"  as  hereinafter  defined, 

plus  a  commission  of per  cent.  ( %)  of 

said  cost  as  compensation  for  the  services  of  the  Contractor. 


Fig.  G. — Building  agreement — percentage  basis. 


152  PURCHASING 


4, — It  is  understood  and  agreed  by  the  parties  hereto  that  the 
term  "cost  of  the  work"  shall  include  all  expenses  of  whatsoever 
nature  incurred  by  the  Contractor  in  connection  with  this  work, 
excepting  cost  of  maintenance  of  Contractor's  executive  main  office 
in   The  said  costs  would  include: 

(a)  All  labor  and  materials,  both  for  temporary  and  permanent 
work,  including  camp  and  other  temporary  buildings. 

(b)  The  cost  of  transportation  of  all  plant  (including  that  furnished 
by  Contractor)  to  and  from  the  site  of  the  work,  the  said  costs  to 
include  freight,  trucking  and  the  loading  and  unloading  of  plant  at 
the  Contractor's  yard  and  at  the  site  of  the  work. 

(c)  All  necessary  repairs  to  plant  while  on  the  work. 

(d)  The  transportation  and  traveling  expenses  of  all  men  to  and 
from  the  site  of  the  work,  including  the  traveling  expenses  of  officers 
or  engineers  of  the  Contractor  when  their  services  are  required  on 
the  work. 

(e)  All  expenses  of  superintendents,  including  timekeepers  and 
clerks,  but  not  including  any  charge  for  services  rendered  by  the 
officers  or  engineers  of  the  Contractor  from  its  main  executive 
office. 

(f)  The  cost  of  the  installation,  maintenance  and  dismantling  of 
plant,  pipe  lines,  etc.,  at  the  site  of  the  work. 

(g)  The  cost  of  all  supplies,  including'any  equipment  not  furnished 
by  the  Contractor  as  hereinafter  mentioned,  wire  and  Manila  rope, 
blocks  and  tackle,  hand  tools,  piping,  steam  and  air  hose,  fuel,  oil, 
waste,  caisson  shafts,  ladders,  etc.,  any  salvage  on  same  at  the  com- 
pletion of  the  work  to  be  credited  to  the  cost  of  the  work. 

(h)  The  cost  of  running  the  camp  in  excess  of  receipts  from  same. 

(i)  The  expenses  of  the  local  office  on  the  work,  of  the  Contractor, 
including  telegrams,  telephones,  express,  postage,  etc. 

(j)  The  cost  of  the  necessary  liability  insurance  to  protect  both 
the  Company  and  the  Contractor  from  loss  by  reason  of  damages 
to,  or  injuries  sustained  by,  the  public  or  workmen  while  engaged 
on  the  work,  and  costs  of  all  damages  in  excess  of  liability  insurance. 

(k)  The  cost  of  any  legal  expenses  and  the  rental  of  any  property 
necessary  for  the  prosecution  of  the  work. 

Fig.  G. — Building  agreement — percentage  basis.     {Continued.) 


FORMS  153 


5. — The  Contractor  will  furnish  without  charge,  other  than  the 
commission  or  fee  herein  provided  for,  its  business  system,  its  engi- 
neering skill  and  experience,  its  patent  methods  and  patent  rights 
in  its  appliances,  its  skilled  organization,  and  generally,  its  ability 
to  equip  the  work  with  efficient  plant,  and  to  organize  the  job  with 
men  experienced  in  this  class  of  work  and  to  construct,  expeditiously 
and  successfully,  work  of  this  nature.  The  Contractor  will  also 
furnish  without  additional  charge  the  heavier  items  of  plant  required 
in  connection  with  the  work,  such  plant  consisting  of  air  compressors, 
air  locks,  receiver  and  cooler,  derricks,  hoisting  engines,  concrete 
mixers,  caisson  buckets  and  boilers  (State  specific  items). 

6. — It  is  understood  and  agreed  that  the  Contractor  shall  purchase, 
on  account  of  the  Company,  all  supplies  and  materials,  etc.,  required 
in  connection  with  the  work,  except  such  as  the  Company  may  wish 
to  purchase  itself,  shall  duly  approve  bills  for  same  for  payment, 
and  shall  then  forward  them  to  the  Company  for  payment,  and  the 
Company  agrees  that  it  will  make  payment  for  such  bills  direct  to 
the  individuals  or  firms  from  which  the  materials  or  supplies  are 
purchased.  Expenditures  made  by  the  Contractor  on  account  of 
the  work  shall  be  reimbursed  as  follows:  On  the  first  (1st)  and 
fifteenth  (15th)  days  of  each  month,  the  Contractor  shall  furnish 
the  Company  a  statement  of  the  expenditures  made  by  it  during  the 
preceding  two  weeks'  period  on  account  of  the  work,  rendering  proper 
vouchers  therefor,  and  the  Company  agrees  that  within  five  (5)  days 
of  the  receipt  of  such  statement  from  the  Contractor,  it  will  pay  the 
Contractor  the  amount  of  such  statements.  The  Company  further 
agrees  that  between  the  first  (1st)  and  fifth  (5th)  days  of  each  month 
it  will  pay  or  cause  to  be  paid  to  the  Contractor,  on  account  of  the 
commission  or  fee  herein  agreed  upon,  one-half  of  the  amount  due 
the  Contractor,  as  commission  or  fee  for  work  done  by  it  during  the 
preceding  month,  and  will  pay  or  cause  to  be  paid  within  thirty  (30) 
days  after  the  completion  of  the  work,  the  balance  of  the  fee  or  com- 
mission due  to  the  Contractor. 

7. — The  Contractor  shall  afford  sufficient  facilities  to  the  author- 
ized representatives  of  the  Company  for  the  inspection  of  said  work 
and  materials. 


Fig.  G      Building  agreement — percentage  basis.     (Continued.) 


154  PURCHASING 


8._Should  the  Contractor  at  any  time  during  the  progress  of  the 
work  refuse  or  neglect  to  supply  a  sufl&ciency  of  materials  of  proper 
quality,  or  of  competent  workmen,  or  cause  any  unreasonable  neglect 
or  suspension  of  work,  or  fail  or  refuse  to  comply  with  any  of  the 
articles  of  this  agreement,  the  Company  shall  be  at  liberty,  after  giv- 
ing ten  (10)  days'  written  notice  to  the  Contractor,  to  terminate 
this  contract,  and  in  that  event,  the  Company  shall  pay  to  the  Con- 
tractor the  cost  of  the  work  as  defined  in  Par.  4,  plus  its  commission 
thereon.  Upon  such  payments  being  made  by  the  Company  to 
the  Contractor,  this  contract  shall  thereupon  be  terminated. 

9. — The  Contractor  agrees  to  take  out  and  maintain  at  all  times 
during  the  course  of  said  work  liability  insurance  in  amounts  to  be 
approved  by  the  Company,  to  protect  said  Companj^  and  Con- 
tractor from  loss  by  reason  of  damage  to,  or  injuries  sustained  by, 
the  public,  or  workmen  while  engaged  on  the  work. 

10. — The  conditions  of  this  contract  shall  be  binding  on  the  succes- 
sors and  assigns  of  the  parties  hereto,  but  no  assignment  hereof  shall 
be  made  nor  sub-contract  let  by  the  Contractor  without  the  written 
consent  of  the  Company. 

11. — The    Company    shall    furnish    the    Contractor    free  of  charge 
such  permits  as  may  be  required  for  the  prosecution  of  the  work. 
IN  WITNESS  WHEREOF,  the  said  parties  have  hereunto  set 
their  hands  and  seals  as  of  the  day  and  year  first  above  written. 

THE (Seal) 

Witness : 

By 

(Company) 

THE (Seal) 

Witness: 

By 

(Contractor) 

Fia.  G. — Building  agreement — percentage  basis.    {Concluded.) 


FORMS  155 


KNOW  ALL  MEN  BY  THESE  PRESENTS, 

That 

of  the  first  part,  for  and  in  consideration  of  the  sum  of 

lawful  money  of  the  United  States, 

to in  hand  paid,  at  or  before  the  ensealing 

and  delivery  of  these  presents  by 

of  the  second  part,  the  receipt  whereof  is  hereby  acknowledged,  has 
bargained  and  sold,  and  by  these  presents  do  grant  and  convey,  unto 

the  said  part ....  of  the  second  part,   executors, 

administrators  and  assigns, 

TO  HAVE  AND  TO  HOLD  the  same  unto  the  said  part of 

the   second   part,    executors,    ad- 
ministrators and  assigns,  forever. 

And do for heirs,  executors  and 

administrators  covenant  and  agree  to  and  with  the  said  part ....  of 

the  second  part,  to  warrant  and  defend  the  sale  of  the  said 

hereby  sold  unto  the  said  part ....   of 

the  second  part, executors,  administrators  and  assigns 

against  all  and  every  person  and  persons  whomsoever, 

IN  WITNESS  WHEREOF,    have  hereunto  set 

hand  and  seal  the day  of 

in  the  year  one  thousand  nine  hun- 
dred and 

Signed,  sealed  and  delivered  in  the  presence  of 


Schedule  of  Foregoing  Bill  of  Sale 


STATE  OF. 
County  of . 


On  this day  of in  the 

year  one  thousand  nine  hundred  and before 

me  personally  came  and  appeared 

to  me  known  and  known  to  me  to  be 

the  person . .  described  in,  and  who  executed  the 

foregoing   instrument,  and    acknowledged  to 

me  that  ....  he.  .  .  .  executed  the  same. 


Fig.  H.— Bill  of  sale. 


156 


PURCHASING 


I 


TO  ALL  TO  WHOM  THESE  PRESENTS  SHALL  COME 

or  may  concern,  greeting;  know  ye,  That 


for  and  in  consideration  of  the  sum  of 

Dollars 

lawful  money  of  the  United  States  of  America,  to in  hand 

paid  by 

the  receipt  whereof  is  hereby  acknowledged,  have  remised,  released 

and  forever  discharged  and  by  these  Presents  do  for 

heirs,  executors  and  administrators,  remise,  release  and  forever  dis- 
charge the  said 

heirs,  executors  and  administrators,  of  all  and  from  all,  and  all  manner 
of  action  and  actions,  cause  and  causes  of  actions,  suits,  debts,  dues, 
sums  of  money,  accounts,  reckonings,  bonds,  bills,  specialties,  cove- 
nants, contracts,  controversies,  agreements,  promises,  variances, 
trespasses,    damages,    judgments,    extents,    executions,    claims    and 

demands  whatsoever  in  law  or  in  equity,  which  against 

ever  had,  nor  ha ...  .  or  which 


heirs,  executors  or  administrators,  hereafter  can,  shall  or  may  have 
for,  upon  or  by  reason  of  any  matter,  cause  or  thing  whatsoever 
from  the  beginning  of  the  world  to  the  day  of  the  date  of  these  presents. 

IN  WITNESS  WHEREOF,    have  hereunto  set 

hand  and  seal  the day  of 

in  the  year  of  our  Lord  one  thousand  nine  hundred  and 


Sealed  and  delivered  in  the  presence  of 


STATE  OF. 
County  of 


On  this day  of in  the 

year  one  thousand  nine  hundred  and before  me 

personally  came  and  appeared 

to  me  known  and  known  to  me  to  be   the  person .  . 

described  in  and  who  executed  the  foregoing  instrument,  and 

acknowledged  to  me  that he  executed  the  same. 


Fig.  I. — General  release. 


FORMS  157 


KNOW  ALL  MEN  BY  THESE  PRESENTS,  That  we,  THE 

COMPANY,  a  corporation  organ- 
ized under  the  laws  of  the  State  of 

with  its  principal  office  at 

hereinafter  called  the  principal  and 

(Bonding  Co.) 

COMPANY,  a  corporation  organized  under  the  laws  of  the  State 

of    ,  and  whose  principal  office  is 

located  in ,  hereinafter  called  the 

surety,  its  successors  and  assigns,  are  held  and  firmly  bound  unto 

Company,  of 

hereinafter  called  the  obligee,  in  the  full  and  just  sum  of 

($ )  DOLLARS,  lawful 

money  of  the  United  States,  to  the  payment  of  which  sum,  well  and 
truly  to  be  made,  the  said  principal  binds  itself,  its  successors  and 
assigns,  and  the  said  surety  binds  itself,  its  successors  and  assigns, 
jointly  and  severally,  firmly  by  these  presents. 

Signed,  sealed  and  delivered  this day  of 

191.  . 

WHEREAS,  said  principal  has  entered  into  a  certain  contract 
with  the  obligee,  to  furnish  the  labor  and  material  required  for  per- 
forming the 

(work  to  be  performed,  etc.) 

HOW,  THEREFORE,  the  CONDITION  OF  THE  FOREGOING 
OBLIGATION  is  such,  that  if  the  said  principal  shall  well  and  truly 
indemnify  and  save  harmless  the  said  obligee  from  any  pecuniary 
loss  resulting  from  the  breach  of  any  of  the  terms,  convenants  and 
conditions  of  the  said  contract  on  the  part  of  said  principal  to  be  per- 
formed; then  this  obligation  shall  be  void;  otherwise  to  remain  in 
full  force  and  effect  in  law. 

IN  TESTIMONY  WHEREOF,  the  said  principal  and  the  said 
surety  have  caused  this  instrument  of  writing  to  be  signed  by  their 
respective  officers  and  their  corporate  seals  to  be  hereunto  affijced,  the 
day  and  year  first  above  written. 


(Principal) 

ATTEST: 


(Surety) 

ATTEST: 


Fig.  J. — Form  of  bond. 


158 


PURCHASING 


\ 


A.  B.  C.  COMPANY 

Ship  Brokers,  N.  Y. 

This  Charter  Party,  made  and  concluded  upon  in  the  City  of 

,   the    day   of ,    191.., 

between    ,   Managing  Owner,  of  the 

of of  the 

burthen  of Tons,  or  thereabouts,  register  meas- 
urement,  now  at    City,   of  the  first  part  and 

, of ,  of  the 

second  part, 

WITNESSETH,  that  the  said  party  of  the  first  part  agrees  in 
the  freighting  and  chartering  of  the  whole  of  the  said  vessel  (with  the 
exception  of  the  cabin  and  necessary  room  for  the  crew,  and  storage 
of  provisions,  sails  and  cables)  unto  said  party  of  the  second  part, 

for  a  voyage  from to ,  on 

the  terms  following.  The  said  vessel  shall  be  tight,  staunch,  strong, 
and  every  way  fitting  for  such  a  voyage,  and  receive  on  board  during 
the  aforesaid  voyage,  the  merchandise  hereinafter  mentioned.  The 
said  party  of  the  second  part  doth  engage  to  provide  and  furnish  to 
the  said  vessel  both  under  and  on  deck,  a  full  and  complete  cargo 
of 

There  are  

(description  of  cargo) 


and  to  pay  to  said  party  of  the  first  part,  or  agent, 

for  the  use  of  said  vessel  during  the  voyage  aforesaid  a  lump  sum  of 

Dollars      ($ ),     payable     in 

United  States  gold  or  its  equivalent  free  of  discount  or  commission 
upon  proper  discharge  of  cargo. 

Cargo  to  be  loaded  and  stowed  aboard  vessel  at  risk  and  expenses 
of  Charterers. 

Vessel  to  be  free  or  Wharfage  while  loading. 

It  is  agreed  that  the  lay  days  for  loading  and  discharging  shall 
be  as  follows  (if  not  sooner  dispatched),  commencing  from  the  time 
the  vessel  is  ready  to  receive  or  discharge  cargo.     For  loading 


Fig.  K. — Charter  of  vessel. 


FORMS  159 

weather     working     days,     Sundays     and 


holidays  excepted. 

For  discharging,  cargo  to  be  received  as  fast  as  Master  can  deliver 
it  in  suitable  hours  and  weather. 

And  that  for  each  and  every  day's  detention  by  default  of  said 

party  of  the  second  part,  or  agents,  $ U.  S.  gold  per 

day,  day  by  day,  shall  be  paid  by  the  said  party  of  the  second  part 
or  agent,  to  the  said  party  of  the  first  part,  or  agent.  The  cargo 
or  cargoes  to  be  loaded  and  stowed  as  above  described  and  delivered 
according  to  the  custom  of  the  port  in  water  lighterage,  if  any,  at 
risk  and  expense  of  cargo. 

Vessel  now  at City  loading  cargo  for , 

after  discharge  of  which  she  is  to  proceed  to to  enter 

upon  this  Charter. 

Vessel  to  move  to  such  loading  and  discharging  berth  as  charterers 
may  direct  where  she  can  always  lie  safely  afloat;  charterers  having 
the  privilege  of  moving  her  thereafter  by  paying  towages. 

A  commission  of per  cent,  on  the  gross  amount  of 

this  charter  is  due  from  the  vessel  to  the  A.  B.  C.  Company,  upon 
the  signing  hereof,  ship  lost  or  not  lost,  Charter  cancelled  or 
uncancelled. 

To  the  true  and  faithful  performance  of  all  and  every  of  the  fore- 
going agreement,  dangers  of  the  Seas,  Fires  and  Navigation,  of  every 
nature  and  kind  always  excepted,  we,  the  said  parties,  do  hereby 
bind  ourselves,  our  heirs,  executors,  administrators  and  assigns,  and 
also  the  said  vessels,  freight,  tackle  and  appurtenances  and  the  mer- 
chandise to  be  laden  on  board,  each  to  the  other  in  the  penal  sum  of 
estimated  amount  of  this  charter. 

IN  WITNESS  WHEREOF,  we  hereunto  set  our  hands  the  day 
and  year  first  above  written. 

Signed  in  the  presence  of: 

(Sgd.) Managing  Owner 

(Sgd.) 


Fig.  K. — Charter  of  vessel.     (^Concluded.) 


180  PURCHASING 

103.  Miscellaneous  forms. — 


Received  at  .  . 
From 

RECEIVING  TICKET 

THE  PURCHASING  COMPANY 

.  .  ..,  191.. 

Clerk 

.  .  .  .  Supt. 

I 


Fig.  a. — General  form  receiving  ticket. 


THE  PURCHASING  COMPANY 

VULCAN  SHOP 

Receiving  Clerk's  Report ,  191 .  . 

Frt.   or 
exp. 

Order 

No. 

Shop 
No. 

Who  from  and  items 

No.  pes. 
No.  bars  wt. 
No.  boxes 

Invoice 
date   and 
store  price 

^ 

Fig.  B. — Shop  form  receiving  ticket. 


FORMS 


161 


Part  No.  or  Stock  No Maximum Minimum 

Name 

Date 

Due                 Added 

Stock  on 
hand 

Deducted 

Check 

Quant. 

Order 
No. 

Quant. 

Quant. 

Order 
No. 

1 

Fig.  C. — Perpetual  inventory. 


162  PURCHASING 


(Dealer? 
Name (Manufacturer? 

Address 


Catalogue  No Page 

(Dealer? 
Name (Manufacturer? 

Address 


Catalogue  No Page  

(Dealer? 
Name (Manufacturer? 

Address 


Catalogue  No Page 

(Dealer? 
Name (Manufacturer? 

Address 


Catalogue  No Page 

(Dealer? 
Name (Manufacturer? 

Address 


Catalogue  No Page 

(Dealer? 
Name (Manufacturer? 

Address 


Catalogue  No Page 


Fig.  D. — Address  index. 


INDEX 


Acceptance  form,  126 
Advantage  of  definite  policy,  39 
Agencies,  consumers,  105 

foreign,  105 

jobbers,  104 
Analysis  and  samples,  10 
Aptitude,  natural,  54 
Assistant  purchasing  agent's  duties, 
82 


B 


Bids,  checking  prices  by,  19 

tabulation  of,  22 
Blanket  orders,  25 
Bonus  and  penalty  clauses,  35 
Broadmindedness,  51 
Buyer  and  seller  compared,  55 

personal  relations  between,  43 


C 


Catalogue  filing,  7 

index  forms,  124 
Catalogues,  7 
Checking  prices  by  competitive  bids, 

19 
Clauses  for  use  in  writing  orders,  131 
Chief  clerk,  duties  of,  83 
Competitive    bids,    checking    prices 

by,  19 
Contract  forms,  136 

what  constitutes  a,  70 
Contracts,  fixing  price  terms  in,  78 

form  in,  25 

importance  of  being  written,  72 

modification  of,  74 

quantity  and  quality  clauses  in, 
74 

time  clauses  in,  77 


Contracts,  verbal,  23 

written,  23 
Cost  plus  a  fee  method,  21 

percentage  method,  21 

D 

Dealers  protection,  evading  the,  67 
Delivery,  how  to  obtain  prompt,  32 

importance  of,  32 
Demand,  knowledge  of,  18 
Departmental  organization,  80 
Different  policies  for  difi'erent  busi- 
nesses, 41 


E 


Emergency  orders,  34 
Emotions,  utilizing  the,  60 
Evading  the  dealers  protection,  67 
Expecting  the  impossible,  in  regard 

to  time  of  delivery,  36 
Extras,  including,  62 


F 


Filing  of  catalogues,  7 

Form  clauses  for  use  in  writing  or- 
ders, 131 
letters,  109 

in  orders  and  contracts,  25 
order  register  and  tracer,  135 
requisitions,  117 

Forms,  advantage  of,  107 
catalogue  index,  124 
choice  of  language,  in  107 
contract,  136 
miscellaneous,  160 
object  of  illustrations,  108 
objections  to,  108 
order  and  acceptance,  126 
price  card,  124 


163 


164 


INDEX 


Forms,  tabulation  of  bids,  122 
Frauds,  statutes  of,  73 
Freight  rates,  railroad,  26 


G 


General  purchasing  agent's  duties, 

82 


H 


How  to  obtain  favorable  terms,  45 
prompt  delivery,  32 
the  lowest  price,  13 
the  right  article,  1 


Importance  of  favorable  terms,  45 
of  reducing  contracts  to  writing, 

72 
of  securing  the  right  article,  1 
Inspection  during  manufacture,  7 
legal  aspect  of,  78 
testing     and     storing,      proper 
supervision  of,  84 
Intended  use  of    article,    knowledge 
of,  1 


K 


Knowledge    of    article    to    be   pur- 
chased, 3 
of  demand,  18 
of  intended  use  of  article,  1 
of  manufacturing  processes,  6 
of  prices,  14 
of  source  of  supply,  4 


Legal  aspects  of  purchasing,  70 
Letters,  form,  109 
Lump  sum  method,  20 

M 

Making   the    purchase    conform    to 
fixed  policy,  39 


Manufacturing  processes,  knowledge 

of,  6 
Meaning  of  terms,  45 
Mill  and  stock  orders,  34 


N 


Natural  aptitude  in  buyers,  54 
New   York   City,   proposed  system 
for,  86 


O 


Offers,  orders  in  the  form  of,  24 
Order  forms,  126 

register  and  tracer  form,  135 
Orders,  accepting  quotations,  24 

blanket,  25 

clauses  for  use  in  writing,  131 

emergency,  34 

form  in,  25 

in  the  form  of  offers,  24 

mill  and  stock,  34 

rush,  33 

unbalanced,  63 


Passing  title  in  goods,  76 
Penalty  clauses,  35 
Perpetual  inventory,  37 
Personal  qualifications  desirable  in 
the  purchaser,  51 
relations    between    buyer    and 
seller,  43 
Policy,  advantage  of,  39 

importance  of  purchaser  know- 
ing, 40 
making   the  purchase  conform 
to,  39 
Policies,  different  for  different  busi- 
nesses, 41 
Price  card  forms,  124 
clerk,  duties  of,  83 
how  to  obtain  the  lowest,  13 
Prices,     checking    by     competitive 
bids,  19 
knowledge  of,  14 
Prompt  delivery,  how  to  obtain,  32 
importance  of,  32 


INDEX 


165 


Proposed    system    for    New    York 

City,  86 
Purchase  of  real  estate,  28 
Purchasing  agent,  duties,  82 
Purchasing  department,  relation  of 
size  of  business  to,  80 
relation  of  nature  of  business 

to,  80 
typical,  82 


Q 


Quantity    and    quality    clauses    in 

contracts,  74 
Quick  closing,  63 
Quotations,  orders  accepting,  24 


R 


Railroad  freight  rates,  26 

Real  estate,  the  purchase  of,  28 

Requisitions,  form,  117 

Routine  from  origin  of  requisition 
to  receipt  of  goods,  84 

Rush  orders,  33 

obviating  by  perpetual  inven- 
tory, 37 


S 


Splitting  the  difference,  58 
Statutes  of  frauds,  73 
Stock  and  mill  orders,  34 
Strategy,  importance  of,  57 
meaning  of,  57 


Tabulation  of  bids,  22 

forms,  122 
Tact,  53 

Tendency  to  restrict  terms,  49 
Terms,  how  to  obtain  favorable,  45 

importance  of,  45 

meaning  of,  45 

tendency  to  restrict,  49 

usual,  46 
Time  clauses  in  contracts,  77 
Title  in  goods,  passing  of,  76 
Tracing  shipments,  35 
Transportation  clerk,  duties  of,  83 


U 


Unbalanced  orders,  63 

Unit  price  method,  20 

Usual  terms  in  different  trades,  46 

Utilizing  the  emotions,  60 


Samples  and  analysis,  10 
Seller  and  buyer  compared,  55 

personal  relations  between,  43 
Sharp  practice,  57 
Shipments,  tracing  of,  35 
Source  of  supply,  knowledge  of,  4 


Verbal  contracts,  23 
W 
Written  contracts,  23 


Po06  060  735  J 


UC  SOUTHERN  REGIONAL  LIBRARY  FAC 


AA    001014  661 


SOUTHERN   BRANCH 

UNIVERSITY  OF  CALlFORfi^' 
LIBRARY 

LOS  ANGELES.  CALIF. 


